The US dollar
was in a giving mood following the dovish statement made by Fed Vice
Chairman Stanley Fischer and the weakest US retail sales since January,
suggesting a rather cautious consumer spending. He expressed concern about
how the slowdown in housing and emerging markets could drag on the long-run
output of the US economy. Meanwhile, retail sales were flat in July
compared to forecasts for a modest 0.2 percent increase, which snapped five
straight months of gains. Still, the US yields remained low which limited
the dollar’s allure and tempered its rise. The US 10-year bond yield rose
to 2.5578% by the end of July from 2.5304% at end-June, it started the
first day of August on a weak note, dip below 2.50%. With the Fed’s
inflation gauges and the PCE deflators, the 10-year US Treasuries yield
remained tame below its 2.0-2.5% inflation target range.
Geopolitical risks are still in the foreground for
most investors and despite all the geopolitical risk we have been reading
about, for the time being, the crude oil prices are still heading south.
Speculators are retreating further from the oil market and thus reinforcing
the downward spiral in prices. Speculative net long positions in Brent have
more than halved compared to their record high six weeks ago.
As risk appetite improved, the Japanese Yen
remained on the up-move to 102.6. Topping the short position was Japan’s
GDP which dropped to an annualized rate of 6.7% in the 2Q, from a revised
+6.1% in the 1Q and compared with -0.2% in the 4Q. This drop marked its
biggest contraction since the March 2011 devastating earthquake and tsunami
as consumption and investment plunged after a sales-tax increase in April.
Following that, Japanese Prime Minister Shinzo Abe said he will make every
effort to get economic growth back on track and some Bank of Japan (BOJ)
policy board members took a more cautious note than the board's central
view that consumer price inflation will likely reach 2.0% in the next
business year starting April, highlighting the board's persistent divide
over when the target will be reached, according to their July 14-15 policy
meeting minutes.
The beleaguered Euro kept within a fraction of a
cent from multi-month lows against the greenback, negotiating the divide
between dovish US Fed officials and weaker Euro data flows. The Bavarian
nation’s influential ZEW survey tumbled to 8.6 for this month - a December
2012 low, from 27.1. The investor morale has now fallen for eight straight
months, showing how geopolitical instability in Ukraine was taking a bigger
toll on investor attitudes.
As a result, Asian currencies with an exception of
Indian Rupee traded on bullish bias against the US dollar. Top gainers were
Thai Baht with 0.5% gains against the US dollar, followed by Ringgit
Malaysia and South Korean won given easing Fed rate hike concerns,
selective buying into local equities and speculation of a China stimulus
package.
Ringgit Malaysia gained 0.49% against the US dollar
to test low 3.1800 against high of 3.1970 at start of the week. The implied
1-month volatility of Ringgit Malaysia fell from high of 5.4% on Monday to
low of 5.1825 and benefitted from cross SGD/MYR, which traded at low of
2.5477 – at almost 10 months low. On the macro front, industrial production
rose to 7.0% in June, from a revised +5.9% in May and compared with +4.7%
in April suggesting that economic activities will likely to have picked up.
Having said that manufacturing sales inched lower to 3.8% in June, from
+5.5% in May and compared with +7.8% in April in line with the moderation
in manufacturing exports. Malaysia’s Q2 gross domestic product (GDP)
expanded 6.4%, faster than expected, while 2Q current surplus narrowed to
RM16.0 billion from RM19.8 billion in previous quarter as imports grew more
slowly and exports remained brisk. For the first half of the year 2014, GDP
grew 6.3%, compared with 5.5% recorded in the same period, a year ago.
Official projection for the GDP figures will be announced in the upcoming
Budget 2015.
Market Movers
for the Week
v From US: NAHB housing market (Aug), CPI (Jul),
Housing starts (Jul), Building permits (Jul), FOMC minutes, Markit PMI
manufacturing (Aug P), Philly Fed survey (Aug), Existing home sales (Jul).
v From Eurozone: Trade (Jun), Current account (Jun),
UK CPI (Jul), Germany PPI (Jul), BoE minutes, Germany PMIs (Aug P), PMIs
(Aug P), Consumer confidence (Aug A), UK retail sales (Jul).
v From Asia: Singapore NODX (Jul), Thailand GDP
(Q2), Hong Kong unemployment (Jul), Japan trade (Jul), Taiwan export orders
(Jul), Taiwan current account (Q2), Malaysia CPI (Jul), China HSBC PMI
manufacturing (Aug P), Japan PMI manufacturing (Aug P), Hong Kong CPI
(Jul), Taiwan unemployment (Jul).
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