Exclusive-Indonesia plans $8 billion refineries contract with US firm amid tariffs deal, sources say
JAKARTA (Reuters) -Indonesian sovereign wealth fund Danantara plans to sign an $8 billion engineering, procurement and construction contract with U.S. engineering firm KBR Inc to build 17 modular refineries, according to two sources familiar with the matter and an official economic ministry presentation seen by Reuters.
The contract is part of last week's trade pact between Indonesia and the United States that led to a reduction in the threatened U.S. proposed tariff rate to 19% from 32%.
Indonesian Economic Minister Airlangga Hartarto, the chief negotiator of the deal, disclosed the modular refinery plan during a closed-door briefing to Indonesian business leaders on Monday evening. Two sources confirmed the planned deal was mentioned in a presentation that Reuters also reviewed.
Danantara and KBR Inc, formerly known as Kellogg Brown & Root, did not immediately respond to requests for comment.
While some details of the trade deal between the United States and Indonesia have been made public, such as for increased energy cooperation, the proposed contract for refineries has not previously been reported.
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Trading Day: Tracking trade - from gloom to boom
By Jamie McGeever ORLANDO, Florida (Reuters) -TRADING DAY Making sense of the forces driving global markets By Jamie McGeever, Markets Columnist A sense of euphoria washed over global stock markets on Wednesday as a U.S.-Japan trade deal and indications of a U.S.-Europe agreement lifted major indexes around the world, pushing the S&P 500 and MSCI All Country to new highs. More on that below. In my column today I look at why the U.S. bond market has been so calm lately despite swirling fears over tariffs, deficits and inflation. Foreign demand, especially from the private sector, appears to have returned with a bang. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. 1. U.S.-Japan trade deal averts worst for global economy 2. Japan trade deal breaks U.S. tariff template 3. EU to advance retaliation on U.S. goods as tariff hikelooms 4. AI and gravity-defying U.S. GDP: Mike Dolan 5. U.S. stock market concentration risks come to fore asmegacaps report earnings Today's Key Market Moves * S&P 500 and MSCI World hit record highs on investoreuphoria following U.S.-Japan trade deal. * VIX volatility index falls to a 5-month low of 15.32. * Japan's Nikkei soars 3.5% to a one-year high above 41,000points. Toyota shares leap 14%, biggest rise since 2008. * Eurostoxx futures jump 2% on reports U.S. and EU areclosing in on 15% tariff deal. * The dollar falls for a third day, dragging the dollarindex down towards its recent three and a half-year low. Tracking trade - from gloom to boom The tariff pessimism that choked markets immediately following President Donald Trump's 'Liberation Day' in early April seems like an age ago. The U.S.-Japan deal and signs of progress on a U.S.-Europe accord injected buoyant stocks with a further dose of adrenaline on Wednesday. At first blush, the Japan deal looks to be much better than investors had expected, with the U.S. tariff on Japanese imports set at 15% instead of the previously threatened 25%. This includes autos too, the largest single component of the U.S. trade deficit with Japan. Investors appear to be cheering the 15% rate. If this is the level agreed upon in the U.S.-EU deal, as European diplomats suggest, it will be half the 30% levy Trump is currently threatening to impose. Relative to the worst-case expectations, that's also a huge relief for markets. At least that's how investors are trading it right now. It remains to be seen what the longer-term tariff impact on growth, inflation, consumer spending, and corporate profits will be. While the tariff relief dominated markets on Wednesday, equity investors also had the latest wave of U.S. earnings to digest - shares in Google's parent company Alphabet fell 2% in after-hours trading, and Tesla shares rose around 1%. In bonds, a $13 billion auction of 20-year Treasuries was met with strong demand, selling at nearly two basis points below the market at the bidding deadline. This helped limit the broad rise in yields underway on the back of the trade optimism. It was a different story in Japan, where the first sale of 40-year debt since Sunday's upper house election defeat for Prime Minister Shigeru Ishiba logged the weakest demand in almost 14 years. The 40-year yield climbed towards its recent 17-year high, and the 10-year yield hit its highest since 2008. Ishiba denied reports that he is about to resign. But uncertainty around his future, fiscal policy and the Bank of Japan's rate path is extremely high. Thursday's focus will turn to the European Central Bank, which is expected to pause after eight consecutive rate cuts and keep its deposit rate on hold at 2.00%. Foreign demand for U.S. Treasuries holds off bond vigilantes So much for the bond vigilantes. The U.S. bond market has been remarkably calm lately, despite fears that inflation, tariffs, eroding Fed independence, and Washington's ballooning debt load will push up Treasury yields. What explains the resilience? The above concerns remain valid, of course, as any one of them could eventually cast a long shadow over the world's largest and most important market. But that doesn't seem to be on the immediate horizon. The so-called bond vigilantes - those investors determined to bring profligate governments into line by forcing up their borrowing costs - might have been driving bond prices lower earlier this year, but they are taking a back seat now. The 10-year Treasury yield on Tuesday closed at 4.34%. That's below the year-to-date average of 4.40%, and less than 10 basis points above the one- and two-year averages. Perhaps even more surprising, implied Treasury market volatility is hovering at its lowest levels in three-and-a-half years, further evidence that investors have little fear of an imminent spike in borrowing costs. OVERSEAS DEMAND The obvious explanation is that demand for Treasuries has picked up, investors lured back into the market by attractive yields on 10-year bonds approaching 5% and even juicer returns on 30-year paper. Concern about an economic slowdown, and thus lower interest rates, is likely adding fuel to this trend. A lot of this demand has likely come from overseas, based on the latest release of Treasury International Capital flows data. Admittedly, these figures are released with a lag, but they are among the most reliable and closely tracked of all international flows information. The TIC data show that the foreign official and private sectors bought a net $146.3 billion of U.S. Treasury notes and bonds in May on a non valuation-adjusted basis. That's the second-highest monthly total ever. And if you include corporate debt, agency bonds and equities, total foreign purchases of U.S. securities in May were the highest on record. Private sector investors accounted for roughly 80% of that total. Their holdings of U.S. Treasuries began to outstrip official holdings a few years ago, and that trend seems to be accelerating. They now hold over $5 trillion, compared to the official sector's $4 trillion. Bank of America's U.S. rates strategy team notes that outsized foreign private demand has also been evident in more recent flows data, particularly from Japanese investors who have bought more than $60 billion in overseas bonds since the start of May. Demand from private sector buyers like pension funds is generally thought to be more price-sensitive than reserve managers and sovereign wealth funds, who are more inclined to buy and hold for the very long term. 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HIBERNATING BEARS Despite all this, there are still plenty of bond bears out there with good reasons to be bearish, not least the $1 trillion flood of new debt issuance expected before this year is out. But what the market action in the first half of this year has shown – filled as it has been with heightened uncertainty around tariffs, geopolitics, deficits and the Fed – is that bond market selloffs aren't likely to last long. That's partly because of the lack of a true alternative. The near-$30 trillion Treasury market is bigger than the Chinese, Japanese, French, UK and Italian government bond markets combined. And it is more than ten times bigger than the German Bund market, the euro zone's premium safe-haven asset. Underlying demand is stronger than the vigilantes have bargained for. 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Trump's Japan Trade Deal Raises Fears He Gave Away Too Much
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Other countries already are clamoring for sectoral tariff relief, and the US-Japan trade deal sends a signal that they are up for negotiation, people familiar with the matter said. Two of those individuals predicted the agreement will also add leverage to the auto and oil industries' pleas for relief from steel duties. 'It doesn't make sense to allow for unlimited vehicle imports at 15%, while charging rates of 25% on auto parts and 50% on steel,' Toomey added. It's also unclear how and when the $550 billion investment fund might come to pass — or if it will prove to be as illusory as investment pledges Trump secured during his first term from China in exchange for scaling down tariffs. Although Beijing promised in 2020 to buy $200 billion in additional US agricultural commodities and other goods, ultimately only 58% of those purchases materialized amid the pandemic, according to the Peterson Institute for International Economics. Trump administration officials cast the Japan deal, as well as frameworks with Indonesia and the Philippines, as incentive for other major partners, including the European Union and South Korea, to bring their best investment and purchasing pledges to the table. 'It spurs other deals along,' White House trade adviser Peter Navarro said in a Bloomberg Television interview. Treasury Secretary Scott Bessent made clear the investment plan helped Japan secure its tariff reduction, telling Bloomberg Television: 'They got the 15% rate because they were willing to provide this innovative financing mechanism.' Lutnick said on the network that under the arrangement Japan will serve as a financier providing equity, loans and other support for manufacturing plants, infrastructure and other projects in the US. Other countries will be under pressure to follow the investment model, said a senior administration official who asked for anonymity because details haven't been formally announced. The investment deals could prove especially attractive to Trump, who frequently extols planned spending in the US announced since his January inauguration. The president and top administration officials also regularly tout the surge in revenue from new tariffs, which have already brought in $113 billion this year, according to the Treasury Department. The US-Japan deal's emphasis on investment suggests the promise of more revenues has taken priority over the push to protect domestic industries, one person familiar with the matter said. While direct foreign investment in the US could help expand domestic manufacturing and artificial intelligence capacity, it won't necessarily make the country's exports more competitive on its own. And some analysts raised doubts about whether Japan's promises to open its markets to US products would prove meaningful. The administration cast Japan's concession to accept cars made to US federal motor vehicle safety standards instead of subjecting them to additional regulatory requirements as a boon for Detroit. Even so, a major impediment to US auto sales in Japan is the American designs themselves — not just trade barriers. Put simply, Japanese consumers are less interested in driving Fords and GMs than Americans are in Toyotas and Hondas. Japan sells the US about 84 cars for every one the US sells there. 'American cars that are big just don't comport well with the needs, desires and demands of the Japanese public' said Colin Grabow, an associate director at the Cato Institute's trade policy center. 'It's unclear what the payoff here is.' --With assistance from Keith Laing, Hadriana Lowenkron, Joe Mathieu, Tyler Kendall and Stephanie Lai. 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International Seaways to Announce Second Quarter 2025 Results on August 6, 2025
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