This week's important market topic is BI policy

22 May 2018, 08:07
Candra Sugiarto
24 - This week will be crowded in the Indonesian market with various releases of important domestic economic data reports and important events.
investors are focused on the Bank Indonesia (BI) policy meeting this week that is expected to result in higher interest rates. It should be noted that Moody's rating agency has warned about the continuing negative pressure on the rupiah and potentially affecting the Indonesian economy. Bank Indonesia may make the May policy meeting an opportunity to raise interest rates, to stabilize the rupiah and ease investor concerns about capital outflows.
Attention will also be on the latest trade data that can provide clues about the state of the Indonesian economy. The market expects Indonesia to post a $ 1.10 billion trade balance in April.
  • Trading resolution
One month after the US Commerce Department banned one of China's largest technology companies, ZTE, to export US products, President Trump announced a willingness to help ZTE resume its business as it was originally. The unusual intervention of the US President comes amid a heated discussion with China on the renegotiation of trade agreements. China's deputy premier Liu He is due to visit Washington this week to continue the discussion, and this Trump move seems like a good starting point to be greeted happily by the market. Many policy makers have criticized this retreat, but from an investor perspective, this is a signal of less tension between the world's two largest economies and will support risk appetite.
  • US Dollar Stronger
A strong rise in US and Dollar yields has been a problem in developing countries over the past few weeks. The higher the US yield, the greater the potential for capital outflows from emerging markets. On Monday morning, the DXY Dollar index looks weaker, down from 92.55 to 92.38. Forex traders also need to monitor 10-year US Treasury bond yields, as failing to exceed 3% may imply short-term peak levels. A significant break above the 3% benchmark requires expectations of a faster tightening by the Fed; in order for this to happen, the economy must show signs of overheating. However, this has not been achieved. April April Retail Sales Data to be released Tuesday is the key economic data we should look into this week. The market forecast a 0.4% rise in April, down from 0.6% in the previous month.
  • Do oil prices peak?
Brent crude oil prices reached the highest level in the last three and a half years, after the US out of Iran's nuclear deal. A 26% increase from the February low was far from expectations, but demand that hit record highs from Asia, concerns of supply disruptions, and especially the risk of war between Iran and Israel, made traders buy call options at $ 100. If the risk of a direct confrontation between Iran and Israel has disappeared, the market focus will shift to the fundamentals and the $ 100 target seems unrealistic. Demand for oil is quite high and OPEC and Russia have exceeded expectations of supply cuts, so prices will likely remain high. Even so, high US shale oil production will continue to limit the price of crude oil. The most significant negative risk for oil prices is if President Trump intervenes in the oil market by pressuring OPEC members to increase production.
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