Jakarta, CNBC Indonesia – Domestic financial markets are moving with high volatility this week. Equity market survived. However, government securities (SBN) and the rupiah exchange rate are not.
The Jakarta Composite Index (JCI) survived with a gain of 0.27% this week. At the same time, the yield on 10-year government bonds rose 0.41%. Increase yield SBN indicates that the price is being corrected.
In line with SBN, the rupiah exchange rate also weakened by 0.35% against the US dollar. However, rupiah correction is still somewhat better than other Asian currencies. The Japanese yen was the worst performing Asian currency this week as it lost 1.65% against it greenback.
This week the US dollar is at its peak. The dollar index, which measures the position of the greenback against six other currencies, gained 1.21%. At the same time, the nominal yield on US government bonds with a tenor of 10 years also rose again.
The nominal yield of US government debt securities which became the reference increased by 6.73% (week on week/ wow) to 1.55%. If inflation in the US is at 1.5%, the real return is 0.05%.
It is still very low. But at least it has been positive unlike before which was in the negative zone. The increase in yield made the stock market move with high volatility.
Investors are starting to notice the potential for high inflation in the US. Therefore, they asked for compensation with an increase in bond yields. There is also concern in the market that with high inflation, the US central bank (The Fed) will begin to tighten monetary policy starting from tapering.
Next week, the sentiment that will drive global financial markets is also still related yield US government debt securities. When the yield continues to increase. Most likely the financial market will still move with high volatility.
Another sentiment that will drive the market is the US Senate’s decision to pass the jumbo fiscal aid worth US $ 1.9 trillion proposed by Joe Biden.
Voting results on the stimulus package showed a 50-49 result, a dramatic result given Republicans questioning the package’s expansion.
After this, the Democratic Party-controlled Congress will approve the package on Tuesday (9/3/2021) local time. After that, an authorization will be sent to Biden to be signed by the March 14, 2021 deadline to renew the previous aid program.
As an illustration, the regulation includes direct assistance to the community of up to US $ 1,400 (equivalent to Rp. 20.1 million), unemployment assistance worth US $ 300 (equivalent to Rp. 4.3 million), and the extension of child taxes to children for one year.
The package also contains funding for the distribution and testing of the Covid-19 vaccine, assistance with rental fees for struggling households, and the cost of opening face-to-face schools.
Senate approval shows Biden’s first legislative initiative is approaching fruition. At a time when the Democrat Party and several economists criticized the scope of the package, Democrats said decisive action was needed to accelerate economic recovery.
The smoother the path of the stimulus will be a positive sentiment for riskier assets such as stocks. But at the same time there are things to watch out for. The flood of liquidity and accommodative macroeconomic policies will encourage faster economic recovery.
When the economy begins to recover, there is a possibility that technology shares will be released, considering that there will be a rotation of shares from sectors that benefited during the pandemic to economic sectors under normal conditions.
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