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The SET broke through the key technical support at 1,370 to close at 1,365.61 on Friday, down 3.42% for the week. The SET is now down 15.69% from the February 2015 high of 1,619.77, about 4.31% from entering a bear market. The last major correction for the SET was in 2013, down 26.93%. The foreign investors selling continues to accelerate as the year-to-date foreign investors’ net sells now top 71.3 billion baht, up 186.6% from the same period last year.
The sell-off got started on Tuesday following the tragic bomb blast on Monday night in central Bangkok that killed 22 innocent people and injured another hundred. The SET plunged 3.3% to an intraday low of 1,362.31 on Tuesday before the index bounced back to close at 1,372.61, down 2.56% for the day. Since then, the SET index has traded along with the global market.
The U.S. markets sold off in the last three days after the Federal Reserve released the minutes from the July 28-29 Federal Open Market Committee (FOMC) meeting on Wednesday. The S&P took a huge loss of 3.19% on Friday after the global financial information and services firm Markit, said its U.S. Manufacturing Flash Purchasing Managers' (PMI) Index fell to 52.9 in August, its lowest since October 2013. A PMI reading above 50 indicates expansion in the sector. The August PMI index is below the final July reading of 53.8% and missed the economists' forecast by Reuters of 54.0.
It didn’t help much either when China's benchmark Shanghai Stock Exchange Composite index took a 4.27% nosedive on Friday after the preliminary reading for the August China Caixin Flash PMI came in at a near six-and-a-half-year low of 47.1, missing a Reuters forecast of 47.7. The Shanghai Composite index has now closed at a level below the key technical support at 3624.73, or a 30% correction. The People’s Bank of China (PBoC) may want to pay attention as most recessions are accompanied by equity market declines of 30% or more.
There is no PMI for Thailand. Nonetheless, the Thailand National Economic and Social Development Board (NESDB) said on Monday that it cut the Thailand GDP growth forecast for this year to between 2.7% and 3.2%, from an earlier estimate of between 3% and 4%, and said that exports could contract 3.5%, instead of an estimated 0.2% gain.
The USD/THB exchange rate was quoted at 35.698 baht per dollar at the close on Friday, up 1.26% for the week. The 10-year Thailand Government bond yield printed at 2.65% at the close on Friday, down 3.28% for the week. The yield spread between the U.S. 10-Year Treasury Note, yielding at 2.05%, and the Thailand 10-Year Government bond, widened to 0.6 percentage points.
Separately, the State Bank of Vietnam (SBV) devalued the dong (VND) by 1% against the U.S. dollar on Wednesday and widened the trading band to 3% from 2%. It looks like Vietnam is now entering the Asian currency war.
There might be spillover to the Asian markets on Monday as the U.S. sold off Friday. The ascending wedge breakdown for the SET is confirmed and the conservative projected target is at 1,250. There are supports at 1,341.85, or the 38.2% Fibonacci retracement level, and 1,313, where the SET can bounce off if the index continues to pull back.
The Relative Strength Index (RSI) and the Moving Average Convergence/Divergence oscillator (MACD) are 26.03 and –24.34, respectively, meaning the SET is extremely oversold. Nonetheless, we may want to see the MACD at around –50 before calling a bottom.
One should keep an eye on the U.S. Federal Reserve, the PBoC and the Bank of Japan in the coming week. The S&P 500 Volatility index, or VIX, surged 48.45% to 28.03 on Friday. The spike in the VIX should serve as a wake up call for the U.S. Federal Reserve, as a VIX level between 25 and 50 is usually a signal for big trouble ahead in the U.S. and for the global economy. |
