Review of economic information for the week of May 20-24

The central exchange rate increased by 25 VND, the VN-Index decreased by 11.18 points (-0.88%) compared to the previous weekend, or the US considered upgrading Vietnam's economic assessment to a market economy... are some notable economic news in the week from May 20-24.

Economic news review

Overview

The US is considering upgrading Vietnam's economic assessment to a market economy.

According to Reuters, on May 8, 2024, the US Department of Commerce held an online hearing on the decision to upgrade Vietnam's economic assessment to a market economy. The decision process is expected to be completed next July.

Currently, Vietnam is considered by the US as a “non-market” economy along with China, Russia and 11 other countries, thereby subjecting to higher anti-dumping taxes. To date, 72 countries in the world have recognized Vietnam as a market economy, including major economies such as the UK, Canada, Australia, Japan, and South Korea. Vietnam has also participated in 16 bilateral and multilateral free trade agreements (FTAs) with more than 60 trading partners around the world.

The U.S. Department of Commerce has a fairly strict set of criteria for determining a country’s market economy status. These include: currency convertibility; wage levels negotiated between workers and employers; and policies on joint ventures or other forms of foreign investment. The agency also considers the extent of government control and ownership of the means of production, resource allocation, and pricing and output decisions.

On the Vietnamese side, according to information from the Ministry of Industry and Trade, Vietnam has proactively prepared information and evidence to provide to the US side and show the level of openness of the economy, trade policy, monetary policy, foreign investment and progress in Vietnam's integration, showing that Vietnam has met the criteria for a market economy as prescribed by the US side.

Experts from the Ministry of Industry and Trade said that the US's consideration of the application to recognize Vietnam's market economy status is a new step after the two countries upgraded their relationship to a comprehensive strategic partnership.

The reason this process is quite slow and somewhat cautious is because the Vietnamese economy is shifting from a planned, centralized, bureaucratic economy to a market economy and currently the economy still has the direction, intervention, and support of the State.

This upgrade will greatly change Vietnam's role and position in the international arena, creating a great step forward compared to when it was considered a non-market economy, which has caused many obstacles and barriers in trade cooperation relations as well as attracting investment with other countries.

When the US recognizes Vietnam as a market economy, it will have more advantages in resolving trade disputes. Countries without market economy status are often subject to anti-dumping duties on their export products. This will create an equal competitive advantage between our country's goods and those of other countries when the trade defense tax reflects the production practices in Vietnam, especially in the context of strong growth in Vietnam's exports to the US.

In addition, this upgrade will help to more conveniently resolve anti-dumping and anti-subsidy investigations that the US applies to Vietnamese export goods (currently the US has investigated 62 trade defense cases, the country that investigates the most trade defense cases).

Furthermore, US recognition of a market economy will be particularly important for Vietnam in the process of participating in global value chains, improving labor productivity and escaping the middle-income trap.

Experts also noted that when recognized as having a market economy, Vietnam must continue to promote state administrative reform and legal reform, ensuring that the State is constantly strong and effective to effectively resolve socio-economic development tasks, practice democracy, maintain independence, autonomy and firmly integrate into international life.

In addition, for Vietnam to truly have a market economy and maintain high growth in the next development stage, the Government must continue to promote economic restructuring, transforming labor-intensive, low-value-added industries into high-value-added, high-tech manufacturing industries.

Domestic market summary from May 20-24

In the foreign exchange market during the week of May 20-24, the central exchange rate was adjusted up by the State Bank of Vietnam through all sessions. At the end of May 24, the central exchange rate was listed at 24,264 VND/USD, up 25 VND compared to the previous weekend session.

The State Bank of Vietnam's transaction office continues to list the buying and selling prices at 23,400 VND/USD and 25,450 VND/USD in all sessions.

The interbank exchange rate during the week of May 20-24 increased closely following the ceiling rate of the State Bank of Vietnam. At the end of the session on May 24, the interbank exchange rate closed at 25,477 VND/USD, equal to the ceiling rate, up 27 VND compared to the previous weekend session.

The exchange rate on the free market also fluctuated slightly last week. At the end of the session on May 24, the free exchange rate decreased by 20 VND for buying and 50 VND for selling compared to the previous weekend session, trading at 25,730 VND/USD and 25,770 VND/USD.

In the interbank money market during the week of May 20-24, interbank VND interest rates increased sharply in all terms in most sessions. Closing on May 24, interbank VND interest rates were trading around: overnight 5.15% (+1.20 percentage points); 1 week 5.28% (+1.06 percentage points); 2 weeks 5.35% (+0.95 percentage points); 1 month 5.45% (+0.80 percentage points).

Interbank USD interest rates fluctuated little last week. On May 24, the interbank USD interest rate closed at: overnight 5.30% (+0.03 percentage points); 1 week 5.33% (unchanged); 2 weeks 5.40% (unchanged) and 1 month 5.43% (unchanged).

In the open market last week from May 20-24, in the mortgage channel, the State Bank offered bids for 7-day and 14-day terms with a volume of VND105,000 billion, the interest rate remained unchanged at 4.25% in the first sessions of the week, then increased to 4.5% in the last sessions of the week. There were VND97,971.3 billion in winning bids and VND7,506.03 billion in maturity last week.

The State Bank of Vietnam offered 28-day SBV bills for auction, bidding on interest rates in all sessions. By the end of the week, a total of VND2,700 billion had been won, with interest rates gradually increasing from 3.85% at the beginning of the week to 4.2% per year at the end of the week, with VND11,400 billion maturing last week.

Thus, the State Bank of Vietnam pumped a net VND99,165.27 billion into the market last week through the open market channel, the volume of SBV bills in circulation decreased to VND52,790 billion, the volume in circulation on the mortgage channel was VND97,971.3 billion.

Bond market, on May 22, the State Treasury successfully mobilized VND5,191 billion/VND9,500 billion of government bonds called for bid (winning rate 55%). Of which, the 5-year term mobilized VND2,000 billion/VND3,000 billion of bid, the 10-year term mobilized VND2,200 billion/VND3,000 billion, the 15-year term mobilized VND200 billion/VND2,000 billion and the 30-year term mobilized VND791 billion/VND1,000 billion of bid. The 20-year term mobilized VND500 billion, however, there was no winning volume. The winning interest rate for the 5-year term is 1.75% (+0.03 percentage points compared to the previous auction), the 10-year term is 2.66% (+0.05 percentage points), the 15-year term is 2.83% (+0.05 percentage points), and the 30-year term is 3.06% (+0.03 percentage points).

This week, on May 29, the State Treasury plans to bid for VND9,000 billion in government bonds, of which VND2,500 billion will be offered for the 5-year term, VND500 billion for the 7-year term, VND3,000 billion for the 10-year term, VND2,000 billion for the 15-year term, and VND1,000 billion for the 30-year term.

The average value of Outright and Repos transactions in the secondary market last week reached VND11,702 billion/session, up from VND10,419 billion/session the previous week. Government bond yields last week increased across all maturities. At the close of the session on May 24, government bond yields were trading around 1-year 1.87% (+0.05 percentage points); 2-year 1.88% (+0.05 percentage points); 3-year 1.90% (+0.05 percentage points); 5-year 2.05% (+0.04 percentage points); 7-year 2.35% (+0.08 percentage points); 10-year 2.92% (+0.18 percentage points); 15-year 3.06% (+0.10 percentage points); 30-year 3.19% (+0.07 percentage points).

In the week of May 20-24, the stock market indices did not have a clear trend, increasing and decreasing alternately. At the end of the session on May 24, VN-Index stood at 1,261.93 points, down 11.18 points (-0.88%) compared to the previous weekend; HNX-Index edged up 0.18 points (+0.07%) to 241.72 points; UPCoM-Index increased 1.33 points (+1.43%) to 94.40 points.

Market liquidity was high, averaging nearly VND30,100 billion/session, compared to VND22,000 billion/session the previous week, with the last session alone reaching over VND40,000 billion. Foreign investors continued to net sell more than VND3,300 billion on all three exchanges.

International news

The US Federal Reserve (Fed) released the minutes of its meeting in late April and early May, and the country also recorded some notable economic information.

In the minutes of the meeting released on May 23, the Fed stated that the US economy continued to expand solidly in the first quarter, with employment increasing and unemployment remaining low, and that inflation had cooled over the past year, but that the current months had not shown much progress toward the target of moving toward 2.0%. Inflationary pressures showed signs of increasing again for some factors, in both goods and services prices.

Members of the Federal Open Market Committee (FOMC, part of the Fed) agreed to maintain the policy interest rate at 5.25% - 5.50% to achieve full employment and inflation at the 2.0% target in the future.

The FOMC also maintained that it would carefully assess incoming data before making any adjustments to the policy rate, and did not expect to cut again until it had greater confidence that inflation was moving toward its target on a sustained basis.

In addition, starting in June of this year, the FOMC will slow the pace of its balance sheet reduction from $65 billion per month to $25 billion per month.

Regarding the US economy, S&P Global survey said that the PMI index of the manufacturing sector and the service sector in the US was at 50.9 and 54.8 points respectively in May, both up from 50.0 and 51.3 points in April, and higher than the forecast of 50.0 and 51.2 points.

In the labor market, the number of initial unemployment claims in the US in the week ending May 18 was 215 thousand, lower than the 223 thousand of the previous week and lower than the forecast of 220 thousand.

Finally, the US consumer confidence index surveyed by the University of Michigan was at 69.1 points in May, up from 67.4 points in April and surpassing the expected 67.8 points.

The UK has received many important economic indicators, notably inflation approaching the Bank of England's (BoE) target. Specifically, the UK Office for National Statistics (ONS) said that the headline consumer price index (CPI) and core CPI in the country increased by 2.3% and 3.9% year-on-year in April, respectively, slowing down from 3.2% and 4.2% in the previous month. Although not reaching 2.1% and 3.6% as forecast by experts, the headline CPI was at its lowest level since August 2021 and the core CPI was at its lowest since November 2021.

In addition, the headline CPI has also temporarily returned very close to the 2.0% target pursued by the BoE.

In the retail sector, UK sales fell 2.3% month-on-month in April, following a 0.2% decline in the previous month and deeper than the forecast 0.5% decline. Compared to the same period in 2023, retail sales last month fell by around 2.7%.

Next, the UK manufacturing PMI came in at 51.3 in May, up from 49.1 in the previous month and beating expectations of 49.5. This is the first time the UK manufacturing sector has returned to expansion (PMI > 50) since July 2022. However, the services PMI came in at 52.9 in May, down from 55.0 in April and below expectations of 54.7.

Source: https://thoibaonganhang.vn/diem-lai-thong-tin-kinh-te-tuan-tu-20-245-152019-152019.html