Global Forex M arket
THE US dollar appreciated by 0.41% to 99.89 owing to worsening Us-china relations following:
(1) US’ renewed criticism on China’s initial handling of coronavirus outbreak; and
(2) Trump threatens China to terminate “Phase One” trade deal if Beijing fails to follow through on its planned purchases of US goods.
Besides, the dollar also received some support after investors grew cautiously optimistic as more countries relaxed restrictions on businesses, raising hopes for a recovery from the historic plunge that is sweeping the global economy.
Nevertheless, the key focus in the US market this week was on the US Treasury Department’s decision to borrow US$3 trillion in second quarter 2020 in attempt to support the economy.
The Treasury also said it anticipates another Us$677bil in third quarter 2020. (First quarter 2020 borrowing: Us$477bil).
Brent crude price surged 8.31% to US$29.46 per barrel fueled by optimism around production cuts and a recovery in demand as more countries announcing easing of lockdowns.
Additionally, the crude oil inventories piled up less than expected at 4.6 million barrels for week ending May 1 from 9 million barrels in the previous week (consensus: 7.8 million barrels) as reported by the Energy Information Administration.
The euro depreciated by 0.67% to 1.08 weighed down after German court made a surprise ruling that could hurt the confidence of European Central Bank’s (ECB) ability to manage the region’s economic recovery.
Germany’s constitutional court ruled that the ECB must justify the necessity of its bond-buying programme, even though Europe’s top court has ruled in favour of it. Meanwhile, key data release this week includes
(1) April Final EU Markit Manufacturing PMI came in lower at 33.4 from 44.5 in March (consensus: 33.6);and
(2) April Final EU Markit Services PMI came in lower at 12.0 from 26.4 in March (consensus: 11.7).
The pound weakened by 0.65% to 1.24 against the stronger dollar. Focus this week falls on Bank of England (BOE) monetary meeting in which they kept its policy rate unchanged at 0.10% as expected.
The committee also voted 7-2 to continue with its planned £200bil quantitative easing programme, bringing its bond-buying programme to a total of £645bil. Two members of the committee favoured an additional £100bil of stimulus.
In its latest Monetary Policy report, the BOE expects expect the UK GDP to fall by 14% over 2020 as a whole, driven by a 3% decline in first quarter 2020 and followed by a 25% decline in the second quarter – marking the sharpest downturn since 1706.
However, BOE forecast GDP to rebound by 15% in 2021, with GDP recovering its pre-covid-19 peak by the second half of next year. This Boe’s economic outlook scenario also expects unemployment to be at 8% in 2020, 7% in 2021 and 4% in 2022.
Amidst a short working week in conjunction of Golden Holiday week, the Japanese yen strengthened by 0.43% to 106.28 owing to rising demand for safe-haven assets following the Us-china deteriorating relationship as well as uncertainties over ECB’S policy. Key economic release for the week includes:
(1) April Jibun Services PMI fell to 21.5 from 33.8 in March (consensus: 22.8);
(2) March household spending declined by 6% year-on-year (y-o-y) from -0.3% y-o-y in February (consensus: -6.7%); and
(3) March wage growth slowed down to 0.1% y-o-y from 0.7% y-o-y in February.
Majority of the Asia ex-japan currencies appreciated in the week against the dollar. Indonesian rupiah topped the list once again, strengthening by 0.70% to 14,995.
This was followed by South Korean won that appreciated 0.33% to 1,225. In contrast, both Taiwanese dollar and Chinese yuan weakened 0.38% to 29.94 and 0.30% to 7.084, respectively.
Amidst a truncated week due to Wesak Day Holiday, the ringgit depreciated 0.17% to 4.32. In the equities market, the FBM KLCI gained marginally by 0.02% to 1,376.9 but recorded a net foreign outflow of Rm700mil.
Mid-week, Bank Negara slashed the overnight policy rate (OPR) by 50 basis points (bps) to 2% during its third monetary policy committee meeting, translating to an accumulative of 100bps reduction in 2020.
The decision aims to mitigate the adverse impact as the economy hammered by the coronavirus pandemic. On the data front:
(1) April’s Manufacturing PMI fell deeper to 31.3 from 48.4 in March as most of factory activities were suspended during the movement control order period; while
(2) March exports slumped to 4.7% y-o-y in March from +11.8% y-o-y in February, added with imports that slid 2.7% y-o-y from +11.3% y-o-y in February.