Review of economic information week 18-22/3

The central exchange rate increased by 24 VND, the VN-Index increased by 18.02 points compared to the previous weekend, or the State Bank of Vietnam withdrew a net 69,699.9 billion VND from the market... are some notable economic information in the week from March 18-22.

Economic news review

Overview

Several major central banks around the world have important monetary policy meetings in March. The policy moves of these central banks are mixed due to the specific context of each country and economic region, most notably the meetings of the US Federal Reserve (Fed) and the Bank of Japan (BoJ). However, it can be predicted that policy rate cuts will be the main trend in the world in 2024.

The Fed raised its economic and inflation outlook for 2024, but left unchanged its forecast for a cut in policy rates. Specifically, in the two-day meeting on March 19-20, the Fed raised its US economic outlook for 2024 to 2.1%, much more positive than the 1.4% forecast in December 2023. The core personal consumption expenditures (PCE) price index for the end of 2024 was also raised by this agency to 2.6% from 2.4% in the previous forecast.

In addition, the US labor market has been steadily creating new non-farm jobs in recent months. The Fed forecasts the US unemployment rate at the end of the year at only 4.0%, slightly lower than the previous forecast of 4.1%. The above forecasts show that the US economy is really under pressure from the high interest rate environment and is likely to have a soft landing when inflation moves towards the target and the Fed cuts policy interest rates again.

Regarding monetary policy, in the recent meeting, the Fed maintained its forecast that the policy interest rate at the end of 2024 will stand at around 4.6% (ie in the range of 4.5% - 4.75%), down 75 basis points from the current level of 5.25% - 5.50%, unchanged from the previous forecast.

Fed Chairman Jerome Powell also said after the meeting that the agency has made great strides in controlling inflation, but the road ahead is still “bumpy”. More importantly, he said that policy interest rates have likely peaked and that a cut in policy interest rates this year is reasonable.

In contrast to the Fed's move, the BoJ raised its policy interest rate for the first time in 17 years. At its meeting last week, on March 19, the BoJ said that inflation in Japan could steadily rise above 2.0% in 2024. Data showed that the country's headline CPI has actually exceeded the 2.0% threshold for more than a year. In addition, in recent wage negotiations, major Japanese companies also agreed to raise wages for workers to the highest level in 33 years.

The above factors are the main reasons why the BOJ decided to raise the policy interest rate to 0.1% from -0.1% applied since the beginning of 2016. This is also the first time the BoJ can raise the policy interest rate again in 17 years.

In addition, the BoJ also narrowed and moved towards ending its quantitative easing (QE) measures within the next year. Further reinforcing the BoJ's view, in its report on March 22, the Japanese government said that the country's GDP increased slightly by 0.1% in the fourth quarter of 2023, contrary to the forecast of a slight decrease of 0.1%.

Officials say the economy is growing at a moderate pace, and hope wage growth will keep consumer demand (which accounts for 50% of GDP) improving despite the BoJ's slight interest rate hike.

The European Central Bank (ECB), the Bank of England (BoE) and the Reserve Bank of Australia (RBA) all temporarily maintained their cautious stance. These central banks also held monetary policy meetings in March, leaving their policy rates unchanged at 4.75%, 5.25% and 4.35% respectively, while waiting for further data on inflation and the economy to decide their next move.

GDP in all three regions showed very weak signs in the last quarter of 2023, flatlining, declining by -0.3% and increasing slightly by 0.2% compared to the previous quarter. Inflation also showed signs of cooling down more quickly, increasing by only 2.6%, 3.3% and 3.4% respectively compared to the same period last February, not too far from the 2.0% inflation target pursued by all three central banks.

In general, except for the US and Japan, other developed economies are facing the same situation of weak growth and gradually cooling inflation over time. The ECB, BoE and RBA are all under pressure to cut policy rates if they want to support economic recovery. The problem for these central banks now is just the right time to act, avoiding the risk of inflationary pressures rising again. Accordingly, the timing of the Fed's move to cut policy rates (most likely June 2024) will be very important (although it may come after the ECB, BoE and RBA), marking the world's monetary policy entering a broad reversal phase.

Domestic market summary week 18-22/3

In the foreign exchange market during the week of March 18-22, the central exchange rate was adjusted by the State Bank in an upward trend. At the end of March 22, the central exchange rate was listed at 24,003 VND/USD, an increase of 24 VND compared to the previous weekend session.

The State Bank of Vietnam's transaction office continued to list the buying rate at 23,400 VND/USD, while the USD selling price at the end of the week was listed at 25,153 VND/USD, 50 VND lower than the ceiling exchange rate.

The interbank USD-VND exchange rate during the week of March 18-22 continued to increase gradually through most sessions. At the end of the session on March 22, the interbank exchange rate closed at 24,770 VND/USD, up 50 VND compared to the previous weekend session.

The USD-VND exchange rate on the free market increased and decreased alternately last week. At the close of the session on March 22, the free exchange rate decreased by 103 VND in both buying and selling directions compared to the previous weekend session, trading at 25,457 VND/USD and 25,537 VND/USD.

In the interbank money market during the week of March 18-22, interbank VND interest rates fell sharply across all terms. Closing on March 22, interbank VND interest rates were trading around: overnight 0.20% (-0.66 percentage points); 1 week 0.48% (-0.61 percentage points); 2 weeks 1.20% (-0.24 percentage points); 1 month 1.76% (-0.28 percentage points).

Interbank USD interest rates remained largely unchanged across all terms. On March 22, the interbank USD interest rate closed at: overnight 5.21% (+0.01 percentage point); 1 week 5.30% (unchanged); 2 weeks 5.38% (+0.01 percentage point) and 1 month 5.40% (unchanged).

In the open market during the week of March 18-22, in the mortgage channel, the State Bank of Vietnam offered a 7-day term of VND15,000 billion, with an interest rate of 4.0%. There was no winning bid, and there was no more circulating volume on this channel.

Last week, the State Bank of Vietnam offered 28-day SBV bills for auction, bidding interest rates in all sessions. At the end of the week, a total of VND69,699.9 billion was won, the interest rate decreased from 1.4%/year to 1.35% and then 1.32% in the following sessions, and increased to 1.7% at the end of the week.

Thus, the State Bank of Vietnam net withdrew VND69,699.9 billion from the market last week through the open market channel, the volume of State Bank of Vietnam bills in circulation stood at VND144,698.8 billion.

On the bond market on March 20, the State Treasury successfully mobilized VND6,095 billion/VND13,500 billion of government bonds called for bid, equivalent to a winning rate of 45%. Of which, the 10-year term successfully mobilized VND3,095 billion/VND5,000 billion called for bid and the 15-year term mobilized VND3,000 billion/VND5,000 billion called for bid. The 5-year and 30-year terms were called for bids of VND3,000 billion and VND500 billion, respectively, but the bids failed. The winning interest rate for the 10-year term was 2.39% (+0.03 percentage points compared to the previous auction), and for the 15-year term was 2.59% (+0.03 percentage points).

This week, on March 27, the State Treasury offered VND13,000 billion in government bonds, of which VND1,000 billion was offered for the 5-year term, VND2,000 billion for the 7-year term, VND5,000 billion for the 10-year term, VND4,500 billion for the 15-year term, and VND500 billion for the 30-year term.

The average value of Outright and Repos transactions in the secondary market last week reached VND9,062 billion/session, up from VND8,815 billion/session the previous week. Government bond yields continued to increase across all maturities last week.

At the close of the session on March 22, government bond yields were trading around 1-year 1.39% (+0.06 percentage points compared to the previous session); 2-year 1.41% (+0.05 percentage points); 3-year 1.46% (+0.06 percentage points); 5-year 1.67% (+0.03 percentage points); 7-year 2.05% (+0.04 percentage points); 10-year 2.54% (+0.01 percentage points); 15-year 2.74% (+0.03 percentage points); 30-year 3.04% (+0.02 percentage points).

The stock market in the week of March 18-22, similar to the previous week, the stock market adjusted strongly in the first session of the week but recovered positively afterwards. At the end of the session on March 22, VN-Index stood at 1,281.80 points, up 18.02 points (+1.43%) compared to the end of the previous week; HNX-Index increased by 1.14 points (+0.89%) to 241.68 points; UPCoM-Index decreased slightly by 0.40 points (-0.44%) to 90.95 points.

Market liquidity was very high, averaging VND33,000 billion/session, a positive increase from VND27,500 billion/session the previous week. Foreign investors continued to net sell nearly VND2,600 billion on all three exchanges.

International News

The US recorded some notable economic information. First, in the construction sector, the number of housing permits and housing starts in the US recorded 1.52 million and 1.52 million units respectively in February, higher than 1.49 million and 1.37 million units in January, and also higher than the expected 1.50 million and 1.43 million units.

In addition, sales of existing homes in this market reached 4.38 million units in February, up sharply from 4.0 million in January and higher than the forecast of 3.95 million units. This is the highest month of sales since March 2023.

Next, the S&P Global survey said the US manufacturing PMI reached 52.5 in March, up slightly from 52.2 in February and above the forecast of 51.8. In contrast, the services PMI this month only reached 51.7, down from 52.3 in February and below the forecast of 52.0.

In the labor market, the number of initial unemployment claims in the US in the week ending March 16 was 210 thousand, contrary to the forecast of 212 thousand as the statistical results of the previous week. The average number of claims in the most recent 4 weeks was 211.25 thousand, a slight increase of 2.5 thousand compared to the average of the previous 4 weeks.

The US current account deficit was $195 billion in the final quarter of 2023, nearly the same as the previous quarter's $196 billion deficit, but still slightly lower than the forecast $209 billion deficit. This week, the market continues to wait for the official report on US GDP in the fourth quarter of 2023 and the core PCE consumer price index in February 2024, which will be announced on the evening of March 28 and 29, respectively, Vietnam time.

The BoE left its policy rate unchanged at its March meeting, while the UK economy also received some important indicators. At its meeting on March 21, the BoE forecast that headline CPI would fall slightly below its 2.0% target in the second quarter of 2024 before rising slightly in the third and fourth quarters.

The MPC decided to maintain the policy rate at 5.25%, unchanged from the previous level, while maintaining the view that the tight monetary policy should be maintained for a sufficient period of time until the risk of inflation exceeding the 2.0% target is eliminated. The MPC will continue to closely monitor signs of inflationary pressures and the economic recovery to make further decisions.

Regarding the UK economy, the headline CPI and core CPI in the country increased by 3.4% and 4.5% year-on-year in February, decelerating significantly compared to the previous month's 4.0% and 5.1%, nearly matching the forecast of 3.5% and 4.6%.

Next, UK retail sales were flat in February (0.0% m/m) after rising 3.6% m/m in January, against forecasts for a slight decline of 0.4%. Compared to the same period in 2023, UK retail sales fell slightly by 0.4% m/m.

Finally, S&P Global said the UK manufacturing PMI came in at 49.9 in March, up from 47.5 in the previous month and beating expectations of 47.9. The UK services PMI came in at 53.4 this month, against expectations of 53.8 in February.

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