Aurelia Butler

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JAKARTA (Reuters) – Indonesia’s outgoing government submitted a 2025 budget plan to parliament on Friday targeting a narrower deficit than this year, which analysts said signalled Southeast Asia’s largest economy would remain fiscally prudent under its next president.The budget proposal worth 3,613.1 trillion rupiah ($230 billion), prepared by ministers under outgoing President Joko Widodo and president-elect Prabowo Subianto’s economic team, projects a deficit of 2.53% of GDP next year, narrower than this year’s expected 2.7%.Total expenditure would be almost 6% higher than the forecast for this year.”We must continue structural reforms, maintain healthy and credible fiscal policy, and enhance collaboration of fiscal, monetary and finance policy,” Jokowi, as the president is widely known, told parliament.Investors have been paying close attention to Prabowo’s first budget, concerned that he might abandon strict fiscal rules after hinting in his speeches at an appetite for taking on more debt in order to achieve a GDP growth target of 8%.By law, the government must keep the annual fiscal deficit under 3% of GDP, while the outstanding public debt-to-GDP ratio cannot exceed 60%. That ratio is currently at 39%.”I think (the proposal) clarifies that the new government would be fiscally prudent, unlike the rumours about increasing the debt-to-GDP ratio to 50% in next five years that could translate to (an annual deficit of) over 4% to 5% of GDP,” said Handy Yunianto, head of fixed income at brokerage Mandiri Sekuritas.Handy said the deficit level was “positive for bond investors.”Economist Ryota Abe at Sumitomo Mitsui (NYSE:SMFG) Banking Corp said that the plan was roughly as expected but that the market still wants to see what policies Prabowo’s pick for finance minister pursues.”My specific focus is on how the next president Prabowo will try to accelerate Indonesia’s GDP growth to 8% without damaging fiscal policy and investors’ risk appetite,” he said.Prabowo, who attended the parliamentary session as defence minister, did not respond when asked whether he would change the budget once he takes over from Jokowi in October.ACHIEVABLE GDP GROWTH TARGETThe new budget proposal assumes the economy expands 5.2% in 2025, similar to the forecast range for GDP growth this year of 5% to 5.2%. Brian Lee, an economist with Maybank Investment Banking Group, said that growth target looked achievable in view of the expansionary plans in the budget and an expected monetary easing. Inflation in the proposal was projected at about 2.5% next year, the midpoint of the central bank’s target range. Based on GDP, inflation and other assumptions, the government has projected total revenues of 2,996.9 trillion rupiah next year, up 7% from this year’s outlook.The proposal called for a new excise tax on packaged sugary drinks but it did not go into details. On the spending side, 71 trillion rupiah is allocated to Prabowo’s flagship “Free Nutritious Meals” programme, unchanged from previous announcements on the programme. The programme is set to be implemented in stages, first in regions with high rates of poverty and stunted child growth, according to the proposal submitted to parliament.A total of 400.3 trillion rupiah is proposed for infrastructure spending, including for the continued construction of Indonesia’s new capital city.The proposal also calls for reform of the government’s energy subsidy policy, moving away from blanket subsidies to targeted distribution to individual beneficiaries.($1 = 15,686 rupiah) More

Ten-year treasury futures headed for a second weekly drop in a row on Friday, set for the largest fortnightly drop in nearly a year, even as a string of dismal economic indicators point to a slowing economy that would normally encourage bets on more policy easing and bond buying on one of the largest government bond markets in the world.Exchange-traded bond funds in China had a spike in outflows on several days in a week where state banks were heavy sellers and media affiliated to the People’s Bank of China reported warnings against reckless buying had begun to work.Some bond-owning domestic wealth management products also slid to discounts to net asset values. The price action points to a market hunkering down for a tussle with authorities, just a raft of new bond sales are due in the coming weeks and months.”What we are seeing here is a new round of PBOC action,” said Julio Callegari, chief investment officer for Asia fixed income at J.P. Morgan Asset Management.He has been reducing a long position in Chinese government bonds for months, partly in response to rhetoric from the central bank aimed at cooling the rally, and as a couple of months of solid bond issuance is expected ahead.”We are closer to neutral, our longs are smaller,” he said, with a reasonable scenario being yields eventually stabilising.Long-dated bonds have been the focus over the past two weeks as China has called out risks of an asset bubble and slapped restrictions on the duration of new bond funds and increased scrutiny over brokers and banks bond dealings.Ten-year yields on Friday were up nearly ten basis points (bps) from last week’s record lows, while 30-year yields have bounced 8 bps to 2.383%.Yields rise when bond prices fall.A week ago the number of wealth management products whose market value dropped below net asset value jumped to hit 385 the highest since March 2023, according to Zheshang Securities and the market is showing other signs of deteriorating. On Thursday just 30.9 billion yuan ($4.3 billion) worth of China’s current 10-year note was traded interbank compared to an average daily volume of 122 billion yuan last week.Zhao Jian, head of Atlantis Finance Research Institute, said that authorities’ moves to lift falling yields in a weak economy were “unfathomable,” in a commentary on social media.While aimed at reducing risk, he said the measures would likely damage market function by making participants reluctant to trade, eventually undercutting its financing and investing purpose. China will stick to a supportive monetary policy and maintain policy stability, its central bank governor Pan Gongsheng said in an interview with state news agency Xinhua on Thursday.VOLATILITYChina’s bond rally has run for years as pandemic lockdowns and a property-market collapse choked economic growth and the post-COVID recovery has disappointed at every turn – driving interest rates lower and therefore pushing bond prices higher.Bond market returns are higher than deposit rates, which is attracting households. New bank lending is also scraping 15-year lows meaning idle bank capital has also streamed into bonds.Authorities have pushed back, fearing a market bubble and the diversion of more and more money away from productive use.To be sure, none of those forces are weakening, leading to deepening battle lines between market participants and authorities.Bond supply is another wildcard, since as of end-July China had sold less than half of the combined 5.62 trillion yuan in local government and treasury bonds it plans for the year.Ju Wang, head of greater China currency and rates strategy at BNP Paribas (OTC:BNPQY), also notes that foreigners who have been drawn in by lucrative swap rates may take the opportunity to book profits and close positions.In a product disclosure on Thursday, the wealth management unit of Bank of Hangzhou said China’s weak economic recovery means it will be easier for yields to go down than to go up.But the bank expects more volatility as yields are already low, and is preparing to “seize trading opportunities”.($1 = 7.1730 Chinese yuan renminbi) More

“[W]hether the Fed delivers a 50bp cut in September will come down to the August jobs report, out in early September,” Citi economists, led by chief economists Andrew Hollenhorst said in a recent note.The labor market’s added importance comes as the latest inflation reading suggest a September rate cut is “all but a sure thing”, Citi said, likely shifting inflation to the Fed’s rearview mirror and turning the central bank’s focus to the labor market.  “A third consecutive month of sub-2% annualized core CPI inflation makes a September rate cut all but a sure thing and should keep Fed officials focused on employment and growth,” the economists added. A 50 basis point rate cut could be sanctioned by Fed officials if the unemployment rate stays at 4.3% or moves higher, Citi estimates, and may even be possible if the unemployment rate drops just 0.1%.Citi’s call for a bigger cut a further deterioration in the labor market has merit. Fed Chairman Jerome Powell has repeated flagged the increased in focus on the labor market and said the central bank would act if there was unexpected weakening. “If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond,” Powell said at Jul. 31-Aug.1 FOMC press conference. The fed chief acknowledged that the labor market has cooled and returned to pre-pandemic levels, but said it remained “strong,” but but not overheated. But those remarks were delivered before the July nonfarm payrolls showed a climb in the U.S. unemployment rate by 0.2% to 4.3%, sparking recession fears and causing many to hit the panic button on stocks. “The most concerning sign is the rise in the unemployment rate to 4.3% from a low of 3.4%,” Citi said, though the recent jobless claims data, which have been dropping over the last two weeks, raises “expectations that the soft jobs report in July may have been ‘transitory.'” The reassuring data has raised the odds to about 75% that the Federal Reserve will ease by just 25 basis points in September rather than 50 bps, with odds of the latter now at just 25% compared with 51% in the prior week. With weeks still to go until the August nonfarm payrolls report due Sept. 6, Powell’s comments at Jackson Hole next week “could also be important in assessing the likely Fed path,” the economists added.But the Fed Chairman Jerome Powell is expected to keep his monetary policy cards close to his chest as data that will sway policy including the August job report will still be horizon. “Since the policy action in September depends on data not yet released, Powell is unlikely to provide clear guidance toward a 25bp or 50bp cut,” they added,But there is a risk that Chair Powell may hint at loosening policy should he signal the need to “more quickly to achieve a neutral setting,” Citi said. More

(Reuters) -Global shares pushed higher on Friday, adding to weekly gains, after encouraging U.S. economic data helped soothe fears of a recession in the world’s largest economy.On Wall Street, stocks extended their biggest weekly percentage gains of the year. The Dow Jones Industrial Average finished up about 0.25% – bringing its weekly gain to 2.7% – while the S&P 500 and Nasdaq Composite both increased 0.2%; they were up about 3.7% and 5% on the week, respectively. MSCI’s main world stock index rose 0.5%, adding to its recovery from market turmoil last week generated by U.S. recession fears and foreign exchange gyrations. The pan-European STOXX 600 index rose 0.3% on the day, still hovering at its two-week high and logging its best week since May 6, up 2.4%.The VIX U.S. stock volatility index, broadly considered the market’s fear gauge, sat at benign levels of about 15 after hitting a four-year high of 65 early last week. The sharp turnaround in market sentiment came after a batch of U.S. data this week showed inflation was moderating and retail spending was robust. That has helped the market narrative move away from recession concerns, sparked by a weak U.S. jobs report in early August, to confidence the economy can keep growing. Softer inflation data has also reinforced expectations of an interest rate cut by the U.S. Federal Reserve in September.On Friday, a survey showed that U.S. consumer sentiment rose in August, driven by developments in the U.S. presidential race, while inflation expectations remained unchanged over the next year and beyond.Scott Wren, a Wells Fargo Investment Institute strategist, said stocks were reacting to the likelihood that while the economy is slowing, the probability of a recession is low and earnings estimates have edged higher. “Modest growth with moderating inflation is a good environment for stocks and bonds,” Wren said in an email. With central bankers from around the globe set to gather in Jackson Hole, Wyoming, next week, traders expect the Fed to lower borrowing costs from a 23-year high next month but have reduced their bets on an emergency 50-basis-point cut to 25%, down from 55% a week ago, the CME FedWatch tool showed. Invesco multi-asset fund manager David Aujla said the U.S. is unlikely to go into recession. But markets likely would be more volatile through to the end of this year, Aujla said, particularly around November’s U.S. presidential election. Easier U.S. Treasury yields on Friday partly unwound the previous session’s surges. The yield on the benchmark U.S. 10-year Treasury note declined 4 basis points to 3.883%.DOLLAR, OIL DECLINEIn Asia, Japan’s Nikkei share average climbed 3.6% on Friday and notched its best week in more than four years, while Hong Kong’s Hang Seng Index rose 1.9%.Japanese stocks gained following heavy losses last week after a surprise Bank of Japan rate cut sent the yen soaring against the dollar, wrecking yen-funded stock trades.The dollar fell against the yen on Friday, and was softer against other major currencies after disappointing U.S. housing numbers. U.S. single-family homebuilding fell in July as higher mortgage rates and house prices kept prospective buyers on the sidelines, suggesting the market remained depressed at the start of the third quarter. The euro added 0.47% versus the dollar.Oil prices settled down nearly 2%, with global benchmark Brent crude below $80 a barrel, but were little changed on the week as investors tempered expectations of demand growth from top oil importer China.Brent fell $1.36, or 1.7%, to settle at $79.68 per barrel and U.S. crude dropped $1.51, or 1.9%, to $76.65.Spot gold prices soared to an all-time high, rising more than 2%. [GOL/] More