Positive Sentiments Abound, but IHSG and Rupiah Face a 'Monster' from America

Indonesia’s financial markets are expected to move in unison to the upside today. The Jakarta Composite Index (IHSG) ended Monday’s trading in the red, falling 75.34 points or 1.28% to 5,820.79. In the foreign exchange market, the rupiah closed Monday’s trading in positive territory amid a weakening United States (US) dollar in global markets. Based on Refinitiv data, the rupiah strengthened 0.39% to Rp17,835/US$, trading within a range of Rp17,825-Rp17,880 per US dollar throughout the day. This strengthening occurred as the US dollar index (DXY) weakened 0.15% to 101.203. Nonetheless, the US dollar remains in a monthly strengthening trend, supported by high US bond yields, geopolitical tensions in the Middle East, and a wait-and-see attitude among market participants ahead of the release of US employment data. Declining yields indicate that government bond (SBN) prices are rising as they are being snapped up by investors. On Wall Street, US stock markets closed higher on Monday, or early Tuesday Indonesian time. The Dow Jones Industrial Average breached the 52,000 level for the first time in history after Alphabet officially joined the index. The Dow Jones rose 306.63 points, or 0.59%, to close at 52,182.74. Meanwhile, the S&P 500 gained 1.18% to 7,440.43, and the Nasdaq Composite surged 2.07% to end at 25,820.14. Alphabet was one of the top gainers, soaring nearly 5% on its first day trading as a Dow component. Comcast shares also jumped 4.4% after the company announced plans to spin off its media and technology businesses into two separate public companies, a process expected to be completed within about a year. The semiconductor sector also posted significant gains, with the VanEck Semiconductor ETF (SMH) rising more than 3%. Shares of Astera Labs, KLA, and Applied Materials surged approximately 16%, 12%, and nearly 11%, respectively, leading the sector’s rally. The gains came as Wall Street entered a shortened trading week due to the US stock market holiday on Friday for Independence Day. Joe Tigay, portfolio manager at Equity Armor Investments, noted that liquidity is likely to be thinner due to the holiday-shortened week, potentially leading to larger-than-usual price swings. He added that with the market approaching the end of the quarter, many investment managers are engaging in window dressing, and some investors are choosing to realise profits on large-cap stocks that have risen significantly this year. On the geopolitical front, the United States and Iran agreed on Sunday to temporarily halt hostilities and allow commercial ships to freely transit the Strait of Hormuz once again. The agreement was reached after a series of military actions over the weekend that had threatened negotiations to end the conflict between the two countries. A US official stated that technical discussions would continue on all aspects of the memorandum of understanding (MOU), and for now, both sides would exercise restraint while ships could resume free passage. Oil prices also strengthened early in the week as market participants assessed whether the temporary halt to the conflict could hold and reduce risks to global energy supply disruptions. Brent crude rose 1.61% to US$73.15 per barrel, while West Texas Intermediate (WTI) gained 2.2% to close at US$70.75 per barrel. Indonesia’s financial markets will close trading for the first half of the year today. Heading into the second semester, the stock market is expected to have recovered. Easing war tensions, a softening US dollar and US Treasury yields, along with government assurances regarding the state budget deficit, will serve as positive sentiment for the rupiah and the IHSG. However, the release of US jobs data, specifically the JOLTS report, could be a stumbling block for the IHSG and the rupiah. If the data is strong, it raises concerns that the Federal Reserve will become increasingly hawkish.