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The SET drifted lower along the trendline support to close at 1,428.79 on Friday, down 0.79% for the week. Foreign Investors continued their selling as the net sells have already exceeded 48 billion baht year-to-date, up about 94% from a year ago. For the emerging markets, including the SET, selling could continue next week after the U.S. Department of Labor said on Friday that July non-farm payrolls came in with a 215,000 increase, down 11.52% year-on-year and below the Wall Street estimate of a 225,000 gain. The May and June numbers were revised up to 260,000 and 231,000, respectively, resulting in 14,000 more jobs gained during the periods.
Wall Street economists said the July jobs report won’t stop the Federal Reserve from raising interest rates in September, as the Federal Reserve already made up their mind after the FOMC meeting on July 29, that it will hike the rate sooner rather than later this year. Bloomberg said the futures market is now pricing in an up-to-75% probability that the Federal Reserve will raise interest rates at the September 16-17 meeting.
Investors rotated out of the shorter-dated U.S. Treasury bonds, whose yields are highly sensitive to changes in the Federal Reserve’s rate-policy outlook, into longer-dated Treasury bonds in anticipation of the Federal Reserve’s rate hike in September. The short-term U.S. Government debt sell-off sent the yield of the U.S. 2-Year Treasury Note surging 1.68% to close at 0.721% on Friday, while the U.S. 10-Year Treasury Note yield was down 3.05% to close at 2.166%, or at 100-day SMA. Demand for the U.S. 10-Year Treasury Note could also rise as they are considered safe-haven assets in times of wobbly equity markets.
Separately, the Bank of Thailand (BOT) said on Wednesday they will leave the benchmark interest rate at 1.5%, as it is their belief that the weakening baht can aid exports and economic recovery better than a rate cut can. The BOT also said they will lower its 2015 growth forecast of 3.0% again by September 25, due to poor exports. The market might not price it in if the number comes in below 2.5%. The University of the Thai Chamber of Commerce said early July that its 2015 growth forecast might be cut to 2.68%, from 3.2% earlier, because of the drought.
The University of the Thai Chamber of Commerce said on Thursday that its consumer confidence index dropped to 73.4 in July from 74.4 in June, the lowest reading since May 2014, citing slow economic growth, contracting exports and low commodity prices.
The USD/THB exchange rate was quoted at 35.142 baht per dollar at the close on Friday, above the key technical level of 35 baht per dollar. The 10-year Thailand Government bond yield printed at 2.81% at the close on Friday. The yield spread between the U.S. 10-Year Treasury Note and the Thailand 10-Year Government bond, widened to 0.644 percentage point. Despite widening of the yield spread, foreign investors are exiting the SET at an accelerating rate.
From our technical viewpoint, the SET is now moving in a descending wedge chart pattern with near-term support at the 1,412 level and head resistance at 1,442. The relative strength index (RSI) is on a downward trend, signaling return of a near-term sell-off. The SET lower high (L-H) chart pattern continues, as every high is lower than the previous high while every low is lower than the previous low. The H6 level at 1,442.16 may now emerge and a continuous bearish downtrend seems to be accelerating. If the SET is unable to bounce off the 1,412 level next week, there is a good chance that the index could fall below the 1,400 level. |
