The Federal Open Market Committee (FOMC) meeting on Wednesday, July 31, 2024, decided to maintain the interest rate at the 5.25-5.50% level. Overall, Federal Reserve Chairman Jerome Powell reiterated his message that if inflation continues to decline, they could see the first interest rate cut since the pandemic at the September FOMC meeting. Interestingly, there is a slight shift in perspective. The committee is now paying more attention to its dual mandate of balancing the labor market and reducing inflation compared to previous meetings. There is a possibility that if the Fed makes the first cut in September, a second cut in December could also occur if supported by data developments.

Simpan Views:

Bond Market Rallies, Equities Relatively Calm

We view these developments as having a fairly positive impact on the domestic bond market, underscored by the decline in the 10-year Indonesian government bond yield to its lowest level since May. In terms of the domestic stock market, we see that these developments have already been factored into market expectations, so the positive impact is not as significant. Nevertheless, overall, this is a positive development for foreign inflows in the near future, if there are no excessive negative sentiments.

Simpan Strengthens Commodity Portfolio

Furthermore, we still see the Fed's interest rate cuts as the main trigger for Bank Indonesia's interest rate cuts. This means that before the Fed cuts, a weakening domestic economy is still expected to continue and present a slight dilemma in maintaining the stability of the Rupiah. In terms of Simpan's portfolio management strategy, we use these developments as a basis for selecting commodity sector stocks with exposure to US dollar strength and those with high exposure to the export market. Therefore, we have strengthened our positions in commodity stocks such as ADRO, UNTR, MDKA, and NCKL.

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