Economy
Asian Markets Await US Inflation Data Amid China Economic Concerns
Asian markets faced challenges on Tuesday (12 September) in their attempt to follow the positive trends in Wall Street and Europe. Investors are anxiously awaiting the release of US inflation data, while lingering concerns about China’s economy continue to weigh on sentiment.
The upcoming consumer price index (CPI) report holds significant importance as it influences the Federal Reserve’s policy decisions. The next Fed meeting is expected to result in interest rates being maintained, but market participants will closely analyze the accompanying statement for insights into the central bank’s future plans.
Equities have encountered difficulties this month due to fears that strong economic indicators and a robust job market may prompt the Fed to implement further tightening measures this year to combat inflation. The situation is further complicated by mixed signals from Fed officials, with some advocating for rate hikes and others favoring a wait-and-see approach to gauge the impact of over a year of rate adjustments.
Fed Chairman Jerome Powell has emphasized that decisions will be data-driven, causing investors to interpret weak economic data as positive news for the future interest rate outlook.
Chris Larkin, Managing Director of Trading and Investing at E*Trade from Morgan Stanley, noted, “This week is more likely to be a ‘good news is good, bad news is bad’ story. The market’s ability to rebound in the near term could hinge on this week’s inflation numbers, especially Wednesday’s CPI.”
Leading economists from major global banks have expressed the view that the Fed is unlikely to implement further rate hikes and may begin reducing borrowing costs in the new year. They also predicted that the United States will avoid a recession. Simona Mocuta, Chair of the 14-member American Bankers Association’s Economic Advisory Committee, stated, “Given both demonstrated and anticipated progress on inflation, the majority of the committee members believe the Fed’s tightening cycle has run its course.”
Meanwhile, tech firms led a surge in all three major indexes on Wall Street, while Asian markets displayed mixed performance. Tokyo, Taipei, and Manila saw slight gains, but Hong Kong, Shanghai, Seoul, Sydney, Singapore, Wellington, and Jakarta all experienced declines.
Concerns about China’s economy continue to dampen investor sentiment, despite some signs of improvement such as a return to inflation and a smaller-than-expected decline in exports and imports. There are calls for the Chinese government to unveil a substantial stimulus package akin to the one implemented during the 2008 global financial crisis to boost growth and support the property sector.
In the currency markets, the Japanese yen slightly weakened against the US dollar after receiving a boost from comments by the Bank of Japan’s head, hinting at a potential shift away from the current ultra-loose monetary policy.
Remittance inflows, a crucial source of USD earnings for Bangladesh, have reached a concerning low, marking the lowest level in three and a half years. This decline comes at a time when Bangladesh is actively seeking to bolster its foreign exchange reserves. According to data released by Bangladesh Bank on a Sunday, remittance inflows stood at $1.34 billion in September 2023, the lowest figure since March 2020 when it was $1.27 billion. Compared to the same month last year, remittances decreased by 12.72 percent or $200 million.
During the first quarter of the fiscal year 2024 (July-September), Bangladesh received $4.91 billion in remittances. This was compared to $4.52 billion during the same period in fiscal year 2020. The decline in remittances has raised concerns among economists and bankers, with hundi, an illegal cross-border money transaction channel, cited as a major reason.
Remitters are drawn to hundi due to its offering of higher exchange rates in comparison to the official channel. Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, emphasized the need for the central bank to take action against hundi to reverse the declining trend in remittance inflows through official banking channels.
Zahid Hussain, a former lead economist at the World Bank’s Dhaka Office, pointed out that the primary reason for the drop in remittances is the exchange rate disparity between the banking channel and the kerb market. Remitters receive Tk 112.75 per USD, including an incentive, through the banking channel, while in the kerb market, they get Tk 117 to Tk 118, resulting in a difference of nearly Tk 5 to Tk 6.
An anonymous senior bank manager and director revealed that some businessmen are encouraging remitters to use hundi, possibly due to the uncertainty surrounding the upcoming national polls. Zahid Hussain also noted that the number of Bangladeshi remitters has not decreased, and the countries where they predominantly work are not experiencing economic turmoil.
Despite the declining remittance inflow, Bangladesh has witnessed a substantial increase in the number of overseas workers. In 2022, after the easing of pandemic restrictions, Bangladesh exported a record 11.35 lakh manpower, the highest in its history. In the first eight months of 2023, this figure stood at 8.82 lakh, surpassing the 2021 yearly figure of 6.17 lakh.
The impact of this decline in remittances is being felt on Bangladesh’s foreign exchange reserves, which have been steadily decreasing. In September, reserves dwindled to $21.14 billion, compared to $36.5 billion in the same month the previous year. The devaluation of the Taka against the USD continues due to declining reserves, with the interbank exchange rate recently increased to Tk 110.5.
While the government’s austerity measures curbed imports of luxury goods, leading to an overall decline in import payments in July, the cost of essential goods imports has risen significantly due to USD price hikes. This situation has prevented Bangladesh from benefiting from the drop in global goods prices.
Bangladesh and India have engaged in discussions regarding the initiation of talks for a free trade agreement aimed at bolstering their economic ties. This noteworthy development emerged during an official-level meeting of the Joint Working Group on Trade (JWG) between the two nations, which took place in Dhaka last week.
The discussions, as outlined by the Indian Commerce Ministry, encompassed a wide array of bilateral issues. These included addressing port restrictions, laying the groundwork for the commencement of a Comprehensive Economic Partnership Agreement (CEPA), aligning standards, mutual recognition of standards, and ensuring the supply of essential commodities to Bangladesh.
These annual meetings serve as a crucial platform for both countries to delve into key trade-related concerns and explore opportunities for collaboration, trade expansion, technical cooperation, and diversification of their economic engagement.
CEPA, a variant of a free trade agreement, involves a substantial reduction or elimination of customs duties on a substantial portion of traded goods between the participating nations. Additionally, CEPA facilitates the easing of regulations to encourage trade in services and investments.
In the course of the meeting, discussions also revolved around matters pertaining to the enhancement of road and rail infrastructure, regional connectivity via multi-modal transportation, and the development or fortification of infrastructure at Land Customs Stations and Integrated Check Posts, as well as the establishment of border haats.
Notably, bilateral trade between the two nations has seen fluctuations, with it registering at $14.2 billion in the fiscal year 2022-23, compared to $8.13 billion in the preceding fiscal year 2021-22.
In September of this year, the country’s export earnings from goods demonstrated robust growth, surging by 10.37 percent and reaching a total of $4,310.33 million. However, these single-month export figures fell short by 7.05 percent of the strategic export target set at $4,637 million, as reported by the latest statistics from the Export Promotion Bureau (EPB).
Comparatively, the export earnings for September in the previous year amounted to $3,905.07 million, indicating a noteworthy increase in the current year.
Taking a broader view, the data from EPB revealed that the overall export earnings during the first quarter of the current fiscal year (July-September) saw a significant growth of 9.51 percent, totaling $13,685.44 million. This exceeded the strategic target of $13,988 million set for the same period.
In contrast, during the same July-September period in the last fiscal year (FY23), the export earnings were recorded at $12,496.89 million, illustrating a noticeable upswing in the current fiscal year.
Among the various exportable items, the Ready-Made Garment (RMG) sector continued to dominate the overseas market during this three-month period, amassing an impressive $11,617.5 million with a growth rate of 13.07 percent.
Breaking down the RMG category, knitwear stood out as the frontrunner, securing the highest export amount of $6,762.59 million, followed closely by woven garments with earnings of $4,854.91 million.
For the current fiscal year, the government has set an ambitious target to export goods worth $62 billion, aiming for an 11.59 percent year-on-year growth. This follows a remarkable achievement in the previous fiscal year (FY23), where exports reached a record-breaking $55.56 billion despite challenging global conditions and uncertainties.
