FOREIGN EXCHANGE MARKET
The Central Bank was forced again to supply dollars to the local foreign exchange market, to the tune of an estimated $10 million, amid generally thin and featureless activity. Despite the fact of it being the traditionally quiet summer season, the Lebanese pound is having some difficulty remaining within the Central Bank’s official intervention band of LP1,501-14,trading this week at LP1,513.75-14.25 on the interbank market.
Investors are awaiting the outcome of parliamentary elections in early September and the subsequent make-up of a new government to have some idea of the prospects of properly mending Lebanon’s economic faults. Too close a similarity to the current cabinet might not be viewed altogether positively by the market. Although, there will be a good deal of skepticism regarding any cabinet until it proves itself in the market’s eyes.
TB subscriptions fell as the amount of maturing bills continued declining, with the former losing 30 percent to LP340.82 billion ($226.08million) while the latter went down 59.9 percent to LP226.76 billion ($150.4million).
The shadowing of TBs maturing by subscriptions is a long-standing relationship with inherent dangers. Unfortunately, subscriptions always appear to exceed maturing TBs, adding further to the debt burden. This situation is likely to continue until the imbalance in the public finances is extensively redressed.
With the decrease in TB subscriptions, the 24-M TB seems to be losing some of its appeal, though it still remains the most favored maturity, as its share of subscriptions fell from 53 percent to 48 percent on August 3 rd .On the other hand, the 12-M TB gained some 12 basis point to capture 27 percent of purchases while the 3-M and 6-M TBs together lost 7 basis point to 25 percent.
The Central Bank sold LP one billion worth of 60-day CDs this week.
The lack of activity in the Eurobond market appears to be persisting, with the market well and truly gripped by the summer slumber. Little is expected to light-up the market until Audi issues its three year dollar denominated bond carrying a fixed rate of return with a convertible option into the bank’s GDRs. The bonds, which are being marketed mainly at Audi’s retail depositors, will require a minimum investment of $1,000 and will offer investors a fixed return of six, seven or eight percent with interest paid semi-annually. U.S. Treasuries were broadly neutral this week, boosted by strong demand for a $ five billion 30-year bond auction and then weighed down by a wave of new supply covering Treasury, corporate and agency paper.
The two important sets of economic data released at the end of the week appeared to cancel each other out. The July Producer Price Index was unchanged while it displayed only a 0.1 percent rise excluding the volatile food and energy components. Retail sales in July, however, grew at its fastest pace since February, going up 0.7 percent against forecasts of 0.4 percent .As a result, the market appears to be sticking to its view that the Fed will leave short-term interest rates unchanged this month. – (Banque du Liban et d’Outre-Mer )