Daily Insight-Trade issue in spotlight as local markets post modest gains in Friday\'s session

On Friday of last week, local markets posted modest gains. On the local foreign-exchange market, the central bank\'s shift toward slightly greater flexibility-meaning fewer dollars for the local currency during the central bank\'s daily intervention-forcing the market participants to accept a stronger currency. The central bank\'s stance on the currency, in our view, is two-fold. Firstly, the central bank has lent its hand to slowing the pace of inflation (meaning CPI), which has been moderating in annualised terms during last two months on the back of monthly deflation (in month-on-month terms). Secondly, the central bank anticipates an inflow of short-term foreign capital into the local bond market, particularly into the VAT bond issue, allowing a stronger currency. Before the issuance of this bond, the bank aims to discourage access to a share of these funds to the local financial markets, which it regards as a risk. If this affirmation holds true, then the trend is likely to continue in these couple of weeks ahead. In the stock market, Friday saw a modest rise on the back of some moderation in global concerns over the European debt crisis. As the euro gained some momentum, i.e., investors stopped dumping euro-denominated assets, growth in the equities market revived on most countries\' exchanges. This aided the local market, which has seen no internal growth drivers of late except for the authorities\' promise to act decisively with regard to privatisation.