Research Center

GSO’s June report shows a slight acceleration in economic performance for the second quarter of 2023. Although the economic growth surpassed the downgraded market assessment, it is far from the expected value in the eco-socio tasks. For the latest update in June, export activities deteriorated under the persistent slowdown in the consumption of Vietnam’s major trading partners, showing challenges for the economy to speed up. Regarding domestic factors, the recovery momentum in post-pandemic exhausted with retail sales much lower than the potential level. In the short term, we predict public investment will mainly support economic growth before material improvement in external factors occurs.

The money market this week seems to neutralize the impact of SBV’s policy rate cut last week as interbank rates rebounded slightly and the dong regained its strength against the U.S. dollar. However, the G-bond yield recorded a fresh low possibly due to its alternative nature for sluggish lending activities. For the next week, GSO will unveil Vietnam’s economic situation through its June report. Hence, we predict the money market to be balanced heading to the next government's assessments and responses to the update of economic performance.

The US-China tech war has led to significant impacts on manufacturers, resulting in a shift from China to Vietnam. The escalating trade tensions between the two countries, coupled with increasing tariffs and export controls, have created a challenging environment for tech companies reliant on Chinese manufacturing. As a result, many manufacturers have started diversifying their supply chains by moving production to Vietnam.

The development in the money market was mainly under the influence of SBV’s rate cut decision. Specifically, to improve economic performance, SBV, on Friday, extended the series of policy rate cuts for the fourth time this year, leading to notable reductions in various interest rates. The overnight interbank rate dropped below the 1% level for the first time since the pandemic, the 10-year G-bond yield recorded the most significant reduction in seven recent weeks, and USDVND climbed by 0.20% compared to last week. For the next week, we predict that the low-interest rate environment, especially for short-term tenors, will be preserved unless the economy records visible improvement.

The escalating US inventory-sales ratio will likely have adverse effects on US import demand, subsequently impacting the export performance of other countries, including Vietnam. The higher the inventory-sales buildup, the lower the US import orders from abroad, which in turn dampens the export growth of trading partners. Given Vietnam's dependence on the US as a major importer, the negative relationship between the US inventory-sales ratio and Vietnam's export is of particular concern. Monitoring the US inventory-sales ratio becomes crucial for assessing its potential impact on Vietnam's export-driven economy.

The money market situation this week was mostly unchanged heading to June FOMC except for interbank rates, especially below 6-month tenors, sliding due to T-bill maturity. The G-bond yield was flat, and USDVND recorded a slight increase after four consecutive weeks of reduction. Looking ahead to next week, we predict that liquidity conditions will remain soft due to the insignificant change in lending activities, although there is no more T-bill maturity. Furthermore, it seems more likely that Fed will pause the rate hike in the upcoming June’s meeting, providing SBV more space to follow easing policies to promote economic growth in the future.

The money market this week features ample liquidity and cautiousness of participants. On one hand, massive T-bill maturity significantly softened liquidity condition, which was already excessive under the slowing lending activities, causing interbank rates to lower further. On the other hand, money market participants seemed cautious heading to June’s FOMC meeting, although the meeting could provide a milestone of Fed pivot. G-bond yield returned to the reduction, while USDVND rose slightly for the fourth consecutive week.

The Chinese economy has made a rebound in 2023, with major economic indicators seeing steady expansion, offering the latest evidence that the world's second-largest economy is set to secure a powerful recovery this year. China's GDP grew by 4.5% in the first quarter of 2023, 0.5% higher than market expectations. Notably, it marked the fastest pace of growth since the first quarter of 2022, indicating that China’s economic recovery is picking up steam

Liquidity condition in the money market remains ample under SBV’s effort to lower lending interest rates to facilitate domestic production. Money continues flowing into the banking system with a massive T-bill maturity without being rolled over. Thus, the interbank rate reduced across the curve this week. Turning into the FX market, USDVND increases further under the DXY resurgence. However, thanks to the steady trade surplus in recent months, we foretell the exchange rate to be stable despite the increasing possibility that Fed will provide a 25bps hike in the meeting two weeks later.