Morning Dew - 4 February 2014

Inflation Gathered Pace

Indonesian inflation stayed high at 8.22% in January (year-on-year). While still lower than the consensus of 8.38% projected by Reuters poll, the pace was more than Bank Indonesia’s target inflation of 3.5%-5.5%. JCI slipped again on the back of the inflation data. The higher-than-expected inflation tends to prompt cautiousness among investors over BI’s stance on interest rates. Prolonged stay above BI’s target inflation range may push the central bank to raise rates again if deemed necessary, especially if USDIDR also stays elevated.

Another source of weakness of JCI this Monday was the decline in US stocks last Friday. Despite tapering tantrum has subsided for now, the risk for another drop among emerging markets’ stocks cannot be ruled out.

The upcoming nonfarm payrolls data set for release next Friday will be closely watched as it is one of the key factors to dictate the pace of Fed’s stimulus tapering.

Trade Improved, So Did PMI

Indonesia booked its best trade surplus for two years as December data showed. Surplus was at US$1.52bn, up from November’s reading of US$776.8 million.

Elsewhere, HSBC Markit Purchasing Managers’ Index (PMI) survey showed that manufacturing activity in Indonesia had improved from 50.9 to 51.0. The number above 50 signals expansion while below 50 signals contraction.

Technically Speaking...

Pressure still mounting on JCI at the start of the new week. The index fell 0.74% to end at 4,386.26 after touching the intraday low at 4,377.54.

Recent low at 4,286 will be the nearest key support line while the next big support comes at 4,161, followed by 4,109 and 3,837.

Continuous pressure has eroded the upside potential of JCI. Nearest resistance is seen at 4,432, followed by another one around 4,480-4,510.

MACD has fallen sharply and currently flirting with the zero line while RSI stays high near the overbought area.

SMRA got filled and the reco is now open while RALS remains pending for entry at 1,250-1,270.

Day Ahead

Although trade surplus improved and PMI showed expansion in manufacturing sector, inflation stays high in January. The fall in IDR as well as the JCI on Monday point at concerns among investors over what Bank Indonesia will do next. Slump around the globe will also make JCI vulnerable on Tuesday.

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