Shadows of MSCI Weight Reduction and War: IHSG and Rupiah Not Yet Safe

Indonesia’s financial markets are expected to face challenges again today. From the bond market, the yield on 10-year government securities (SBN) remains stagnant at 6.62%. From the US stock market, Wall Street strengthened on Monday or early Tuesday Indonesian time as investors sought signs of progress towards a ceasefire agreement between the US and Iran. Investors also evaluated the increasingly heated threats of escalation from President Donald Trump if Iran fails to reopen the Strait of Hormuz. All three major US indices rose slightly, with the S&P 500 and Nasdaq on track for their fourth consecutive day of gains, the longest streak since January. The Dow Jones Industrial Average rose 165.21 points or 0.36% to 46,669.88. The S&P 500 strengthened 29.33 points or 0.45% to 6,612.02, and the Nasdaq Composite climbed 117.16 points or 0.54% to 21,996.34. Of the 11 major sectors in the S&P 500, the communications services sector recorded the largest percentage increase, while the utilities sector was the weakest. Stocks in travel and recreation, aerospace and defence, and residential construction became the main outperformers. Soleno Therapeutics shares surged 32.3% after Neurocrine Biosciences agreed to acquire the rare disease drug company in cash. The rise in Bitcoin prices also boosted shares of US-listed crypto-related companies, such as Coinbase and MicroStrategy, up 1.9% and 6.6% respectively. The number of advancing shares outnumbered decliners with a ratio of 1.93 to 1 on the NYSE. There were 88 stocks hitting new highs and 54 stocks recording new lows. Trading volume on US exchanges reached 14.78 billion shares, compared to an average of 19.51 billion shares over the last 20 trading days. Why is the Stock Market Improving? Iran has rejected the US proposal for an immediate ceasefire and insists on a permanent end to the war, according to the Islamic Republic News Agency (IRNA). This rejection came after Trump’s increasingly aggressive ultimatum, which promised to “rain hell” on Iran if the vital Strait of Hormuz remains closed to oil tankers. Investors gained some reassurance from reports indicating that the US, Iran, and several regional mediators are still discussing potential ceasefire terms. “In reality, we are slowly getting closer to some form of resolution,” Ryan Detrick, chief market strategist at Carson Group in Omaha, told Reuters. “Unfortunately, it won’t happen today. But investors feel we are seeing more dialogue from both sides. Daily volatility and news can feel nauseating,” he added. The US-Israel war against Iran has shaken markets for more than a month. The surge in crude oil prices has triggered inflation concerns, and stocks have plunged at times. Although the S&P 500 is on track for four consecutive days of gains, the benchmark index is still down 3.9% since the conflict began. Economic data on Monday showed the US services sector grew more slowly than expected in March, while employment in the sector shrank and the prices paid component jumped to its highest level since October 2022. The highly anticipated March employment report, released during the Good Friday market holiday, showed the US economy added 178,000 jobs last month, nearly three times the consensus of 60,000. However, this positive surprise was somewhat offset by a revision to February data showing a loss of 133,000 jobs, from the previous 92,000. Indonesia’s financial markets are expected to face pressure again today. Uncertain war developments along with domestic economic concerns could weigh on the IHSG and the rupiah today. Statements from stock exchange officials regarding Indonesia’s weighting in the MSCI index could be a burden today. However, the greening of Wall Street could provide positive sentiment. War Developments Iran on Monday stated it wants to end the war permanently with the United States and Israel and rejected pressure to reopen the Strait of Hormuz. Meanwhile, US President Donald Trump warned that the country could be “destroyed” if it does not meet the deadline on Tuesday night for reaching an agreement. In response to the US proposal via Pakistani mediators, Tehran rejected the ceasefire and emphasised that what is needed is a permanent end to the war, as reported by the official IRNA news agency. Iran’s response consisted of 10 points, including cessation of conflict in the region, safe passage protocols through the Strait of Hormuz, lifting of sanctions, and reconstruction. Trump, who threatened to “rain hell” on Tehran if no agreement is reached by 8:00 PM EDT Tuesday (midnight GMT) to open the Strait of Hormuz—the vital global energy supply route—rejected Iran’s response and emphasised that his deadline is final. In a press conference, Trump said Iran could be “destroyed in one night, and that night might be tomorrow night,” referring to Tuesday. He also promised to destroy power plants and bridges in Iran, and dismissed concerns that such actions could be considered war crimes or provoke the anger of Iran’s 93 million people. Without an agreement with Tehran, Trump said, “Every bridge in Iran will be destroyed” before midnight EDT Wednesday (04:00 GMT), and “every power plant in Iran will be paralysed, burned, exploded, and never usable again.” Iran’s supreme joint military command called Trump “delusional” and described his warnings as “crude, arrogant rhetoric and baseless threats,” according to a statement from spokesman Ebrahim Zolfaqari on state television. After Trump’s latest statement, Iran’s Deputy Minister of Sports Alireza Rahimi called on artists and athletes to form a ra