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Weekly Market Outlook

by UOB Economic-Treasury Research

USD/Asians came off on Friday following the rise in the preceding sessions. This was helped by some bargain- hunting in the stock markets with the Asian stock indexes mostly higher on Friday. In the Southeast Asian markets, Indonesian rupiah recovered back below Rp9,000/USD resist- ance to end at Rp8,970/USD. Indonesian senior Economic Min Hatta Radjasa said the IDR is not overvalued yet while Bank of Indonesia expects the currency to average Rp9,100/USD this year. Similarly, Malaysian ringgit strengthened to RM3.1660/USD from 3.1780 on Thursday.

Over the past week, Asian currencies softened against USD with the decline led by KRW which ended the week down 2 per cent against USD. The soft equity market in the US on Friday night suggests that USD/Asians could head slightly higher on Monday but should still remain within ranges following the stabi- lisation on Friday.

Data this week are more evenly spread out. Singapore’s July NODX will be due on Tuesday with market expecting a slow- down in the growth to 20.5 per cent YoY from 28.7 per cent in June. Malaysia and Taiwan will be releasing their 2Q2010 GDP data on Wednesday and Thursday respectively. For Malaysia, we are expecting the GDP growth to moderate to around 8.1 per cent YoY from 10.1 per cent in 1Q2010. Similarly, Taiwan is likely to see its growth easing to around 10.2 per cent YoY in 2Q2010 from 13.27 per cent in 1Q2010. Also watch out for Malaysia’s July inflation scheduled on Wednesday which could potentially come in stronger-than-expected following the hike in pump prices. The focus on Friday is on Thailand’s trade data for July as well as Taiwan’s July export orders which are expected to sustain strong growth. Indonesian markets will be closed for Independence Day holiday on Tuesday.

Asian stock indexes mostly ended higher on Friday. The Nikkei was up 0.4 per cent while Hang Seng Index fell 0.2 per cent and is likely to face further downward pressure following the property market measures announced on Friday. The Shanghai CI ended up 1.2 per cent while STI tracked gains in the road markets to end up 0.4 per cent on Fri. On Monday morning, the Nikkei opened in the negative territory following further drop in the US stock indexes on Friday.

The USD strengthened last Friday against most major currencies reflecting safe haven flows from concerns about slowing global economic growth. The EUR/USD trended lower at US$1.2755 from US$1.2830. The euro was also weighed down by worries emerged again out of Spain and Ireland about the negative effects of austerity measures on the economies of some Eurozone nations. Indeed, increased risk aversion has prompted safe haven flows back into the USD and JPY this week, with both the EUR/USD and EUR/JPY falling by as much as -4.0 per cent. Indeed, this week’s developments out of Europe may be significant particularly following reports late last week from the Bank of Spain that Spanish banks increased their funding from the ECB in July and lacklustre demand at an Italian government bond auction last Friday showed that the negative ramifications of the Eurozone sovereign debt crisis continue to linger.

The headlines further deteriorated sentiment towards the euro, already low after a recent string of disappointing Eurozone data and concerns about the creditworthiness of Irish banks. The USD/JPY rallied to JPY86.18 from JPY85.89 and a session low of JPY85.56. The dollar posted gains here on reports that Japa- nese PM Kan and BOJ Governor Shirakawa may meet this week to exchange views on the yen’s recent appreciation and ways to deal with it.

As expected US Treasuries rose last Friday on the back of concerns about the global economic outlook. There were strong gains made in longer-dated issuance, while shorter- dated securities were little changed. The 10-year note’s yield fell 8 basis points to reach 2.67 per cent while the 2-year yield was only down 1 basis point to 0.53 per cent. The Fed will start buying Treasuries this week from Tuesday to push down long- term interest rates. US Treasuries were also supported over concern about the health of the Eurozone banking system, especially banks in Ireland amid reports of capital injections made last week.

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