Macro Strategy: Rising Volatility Risk

Stock Code	Last Price	Change	Change %
DSSA	60.200	1.700	2,91%
CTBN	5.875	525	9,81%
PACK	4.520	410	9,98%
MBSS	1.830	365	24,91%
GMTD	2.730	240	9,64%
FILM	2.700	200	8,00%
RDTX	12.975	200	1,57%
INDF	8.400	175	2,13%

Macro Strategy

Rising Volatility Risk

Unlike other central banks, the BOJ is expected to hike rates, and this will have a moderate impact on yields and the currency volatility.
The latest Beige Book indicates a slightly positive outlook on the US economy, and this suggests a more gradual rates cut path for the Fed.
Despite lower Forex Reserves, BI reduced the OMO level whilst adding to SBN positions. This indicates a higher level of confidence in the IDR.

All eyes will be on monetary policies. This week will be crucial in assessing the future path of monetary policy. Global interest rates have remained stable for several months, with neither the Federal Reserve (Fed) nor the European Central Bank (ECB) indicating any imminent policy rate changes since late 2023, a situation which we expect will continue at this month’s meetings. However, there are mounting expectations that the Bank of Japan (BoJ) will shift away from its long-standing negative interest rates policy toward a 0% rate at its upcoming meeting. The largest worker union in Japan has secured an agreement for 5.3% wage increases in 2024, a substantial rise from the last year’s 3.8%. This significant boost in wages is hoped to stimulate demand and reduce deflationary pressure, while it may also create moderate volatility in both yields and currencies in the ST. Given Japan's significant holdings of US Treasuries (UST) and its influence on the Dollar index (DXY), an increase in Japanese interest rates might potentially trigger repatriation of Japanese funds from global markets. In a similar vein, rising rates may lead to a stronger Japanese Yen trend, which would lead to a weakening DXY. In our view, the global narrative of rate cuts this year will hold, although we expect Bank Indonesia (BI) to cut rates only after an initial Fed rate cut. Rising energy prices on ongoing geopolitical tension will remain a key risk, in our view.

Outlook for more gradual rate cuts. The latest Federal Reserve Beige Book offers insights into the current status of the US economy, with a slightly positive outlook, suggesting a more gradual rate cut outlook. Consumer spending moderated in 1Q24, particularly on retail goods, following robust spending in the previous quarter. Demand in service sectors also softened due to ongoing price increases. However, there was some relief from inflationary pressures as supply constraints in the manufacturing sector improved. While tensions in the Red Sea resulted in higher shipping costs, they had a minimal impact on overall business operations. Labor market tightness eased as well, with the unemployment rate reaching 3.9% in Feb24, its highest level since Jan22. The Beige Book also noted weak demand in Commercial Real Estate (CRE), especially in office space. While this might affect earnings for regional banks, it is not considered alarming as banks can adjust loss provisions accordingly. Overall, these conditions indicate that a first rate cut in 2H remains plausible and largely inline with the recent commentary from various Fed members (exh 15-16 for details).

The risk on the IDR remains under control. Indonesia's FX Reserves decreased to USD144bn in Feb, continuing the decline from Dec23's high of USD146.4bn mainly due to the payment of government foreign debt. Recent Trade Surplus data is also below expectations, a mere USD0.9b vs the USD2.3bn consensus. While this poses risk to the ST outlook for the IDR, we note that BI has been easing the pace of monetary contraction, as indicated by the lower OMO level. Additionally, BI also injected liquidity into the banking system by aggressively purchasing government bonds in the secondary market in Feb. In our view, such moves reflect BI’s greater confidence in the outlook for the IDR.

Capital Market – Rising External Volatility

Fixed Income – INDOGB remains stable. The 10-year US Treasury yield rose to 4.31% (from last week’s 4.08%), attributed to a higher US inflation rate and PPI compared to the previous month. Concurrently, the yield on Indonesian 10-year Government Bonds (INDOGB) also saw a slight increase over the week, reaching 6.65% (from 6.63%). On currency front, the dollar index appreciated by 0.69%, while the Indonesian Rupiah depreciated by mere 0.02% during the same period, closing at IDR15,595. Conversely, Indonesia's 5-year Credit Default Swap (CDS) also remained stable at 69 basis points as of March 15, 2024. As highlighted above, relatively lower OMO and large addition on the SBN position indicated BI’s greater confidence on the IDR outlook.

Fixed Income Flow – Continues Foreign Outflows. The latest data from Ministry of Finance (MoF) revealed continued foreign outflow in domestic government securities (SBN) of IDR10.83 tn last week, with overall position down to IDR818.71 tn (as of March 14, 2024). The MTD total outflow has reached IDR18.42 tn. Similar trend also observed on the banking sector, with weekly outflow of IDR29.91 tn (MTD outflow: IDR37.57 tn). Ending the two weeks of outflows, Bank Indonesia (excluding Repo) reported weekly inflow of IDR30.99tn (MTD inflow: IDR49.37 trillion), which has underpinned greater stability on recent INDOGB yield trend, despite rising external volatility. Mutual funds experienced weekly outflow of IDR530bn, while insurance & pension funds saw an outflow of mere IDR400 mn.

Government Auction of State Sharia Securities (SBSN) – 19^th Mar-24.

The auction will involve the reopening of various series including SPNS03092024, SPNS02122024, PBS032, PBS030, PBSG001, PBS004, and PBS038, with the aim of raising a total of Rp12 trillion.

Results from previous Sovereign Shariah Securities auction held on March 5 showed a total bid volume of IDR17.05 tn, indicating a decrease compared to the previous auction held on February 20, which saw IDR19.88 tn in bids. Among the series offered, PBS032 received the highest bid volume, ranging from 6.48% to 6.80% yield, with bids totaling Rp6 trillion. SPNS02122024 and PBS038 followed closely, attracting bids of Rp3.92 trillion and Rp2.44 trillion respectively. SPNS02122024 offered a yield range of 6.39% to 6.60%, while PBS038 offered a yield range of 6.95% to 7.10%. Consequently, the total amount awarded in this auction was IDR7.38 tn falling short of both the government's target of IDR12 tn and the amount raised in the previous auction. Thus, the bid-to-cover ratio for this auction stood at 2.31x.

Equity Flow – Continues Inflow Trend, albeit moderating

Another weekly inflow in the 2nd week of March, with foreign inflow recorded at IDR973 bn, despite JCI down 0.7% week-on-week. On YTD basis, foreign inflow surged to IDR15.2tn, while it hit IDR2.1tn inflow on MTD basis. BMRI emerged as the top inflow after being the top outflow in the previous week. BBCA, TPIA, AMRT, BRIS, MEDC, ITMA, ADRO, ISAT, MAPI, and MAPA consistently remained among the top inflows. After six months of outflow, PGAS was included in the top inflow. Conversely, MDKA, KLBF, MBMA, and INDF consistently remained among the outflow list. BBNI and BBRI topped the outflow list after experiencing inflow for 4-7 consecutive months. HMSP and GGRM also were among the top outflows.

… Read More 20240318 MacroStrategy