Global Forex Market

THE US dollar strengthened 0.73% to 100.466, benefiting from safe haven flows as investors turned wary over a potential second wave of the Covid-19 infection as many countries eased their lockdowns. The dollar also received additional impetus following:

(1) Trump ruling out renegotiating the trade agreement signed with China; and

(2) a downbeat economic assessment from the Federal Reserve (Fed) chairman Jerome Powell, citing the US economy outlook was “both highly uncertain and subject to significant downside risk”.

Adding to that was disappointing economic release which includes:

(i) softer headline inflation at 0.3% year-on-year (y-o-y) in April from 1.5% y-o-y in March (consensus: 0.4% y-o-y) while April’s core inflation is at 1.4% y-o-y from 2.1% y-o-y in March (consensus: 1.7% y-o-y);

(ii) April PPI fell 1.3% month-onmonth (m-o-m) from 0.2% m-o-m in March (consensus: -0.5%) – the largest drop on record; and

(iii) the US jobless claims for week ending May 9 at nearly 3 million compared to 3.2 million in the previous week (consensus: 2.5 million). This brings the total unemployed to about 36.5 million people.

Brent crude price rose 0.52% US$31.13 per barrel bolstered by:

(1) Saudi Arabia’s announcement for additional production cuts by 1 million barrels per day (bpd). This will bring Saudi Arabia’s total cut to roughly 4.8 million bpd, which is below its April record production level if combined with cuts agreed by Opec and Opec+;

(2) the Energy Information Administration (EIA) reporting the first decline in US crude supply since Jan 17, down 0.75 million bpd in the week ended May 9 versus a 4.59 million increase in the previous period; and

(3) the IEA’S latest report which projects global oil supply to drop by 12 million bpd in May to a 9-year low of 88 million per day.

The euro depreciated 0.31% to 1.08 owing to a stronger dollar. At the same time, the release of the European Central Bank’s latest economic bulletin highlighting:

(i) the eurozone GDP could 5%–12% this year;

(ii) a profound deterioration labour market conditions;

(iii) headline inflation likely to decline further in the coming months; and

(iii) room for monetary accommodation remains.

The pound slid 1.45% to 1.22 on the back of ongoing Brexit tension amidst global risk-off sentiment which offset news flow surrounding PM Johnson’s plan to lift the UK coronavirus lockdown and reopen the country over the next two months.

Also, the UK economy posted a weak first-quarter GDP at -1.6% y-o-y from +1.1% y-o-y in fourth quarter 2019 (consensus: -2.1%), the lowest since fourth quarter 2009. The preliminary details in the GDP report showed household consumption dropping 1% y-o-y and fixed investment falling 2.3% y-o-y.

The Japanese yen weakened 0.56% to 107.3 due to the bleak April data such as:

(1) the Eco Watchers Current Survey that fell for the third consecutive month to 7.9 from 14.2 in March; and

(2) machine tool orders declined further by 48.3% y-o-y from 40.7% y-o-y in March.

Towards the end of the week, PM Shinzo Abe declared the end of the state of emergency for most regions in Japan but restrictions are being kept in high-risk areas. The measure is lifted ahead of the May 31 schedule in 39 out of 47 prefectures, effective immediately.

The majority of Asia ex-japan (AXJ) currencies slid against the dollar. The Singapore dollar fell 0.75% to 1.424 as the country topped the list of the most coronavirus cases reported in Southeast Asia. Meanwhile, the South Korean won slipped by 0.66% to 1,228 owing to a surge in Covid-19 cases after the Korean government introduced policies in loosening social distancing. In contrast, the Thai baht appreciated by 0.33% to 32.096, supported by the plateauing Covid-19 cases.

Amidst a short working week, the ringgit depreciated by 0.12% to 4.34. Meanwhile, the FBM KLCI rose 1.08% to 1,397 albeit with foreigners remaining net sellers with the outflow amounting to Rm800mil (year-to-date FM KLCI foreign outflow Rm11.8bil). Meanwhile, the economy reported a series of weak data:

(1) the first quarter GDP eased to +0.7% y-o-y from +3.6% y-o-y in fourth quarter 019 – marking the weakest growth since third quarter 2009 which reflected the impact of containment measures in addressing Covid-19;

(2) unemployment rate at 3.9% in March, an 11-year high, from 3.3% in February;

(3) distributive sales declined by 5.7% in March from 5.3% in February; and

(4) March’s industrial production at -4.9% y-o-y from +6.2% y-o-y in February, marking the lowest level since September 2009. The government also decided to extend the existing conditional MCO until 9 June.