|
The SET closed at 1,280.92 on Friday, down another 3.95% for the short trading week, a 21-month low. The index closed below 1,295.82, meaning the SET is now entering into bear market territory, defined as a downturn of 20% or more from the recent cycle high at 1,619.77 set in early February. The avalanche sell-off was triggered by the accelerated falling crude oil prices and Thai baht depreciation, which began in late November.
Besides investors losing money on their investments, a bear market will put a lid on IPOs and secondary offerings, meaning Thai companies will have difficulty to raise capital from the equity markets for refinancing or growth.
There is no quick fix for the falling crude oil prices, as the crude oil market is in contango and it isn’t going away anytime soon. Contango refers to a situation where traders are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity due to oversupply.
To make matters worse, the USD/THB exchange rate, quoted as high as 36.201 baht per dollar on Friday, is on the rise again, despite a weak dollar against the euro and Japanese yen. The EUR/THB surged 0.65% on Friday, at 39.7224 baht per euro, and is ready to cross the 40 mark. The euro and Japanese yen appreciated 2.1% and 2.99%, respectively, against the Thai baht for the week, meaning traders are dumping the baht to buy the euro and the yen.
Currency depreciation can be good and bad for an economy. One should be careful though, as a wrong assessment of the problem could lead to a wrong solution, meaning having a weaker currency may not lead to any rise in export volumes but trigger foreign investors to pull capital from the country.
The People’s Bank of China (PboC) just made another risky move, as the bank set the daily reference at 6.4358 yuan to a dollar on Friday, the lowest since August 5, 2011, according to the PBoC’s China Foreign Exchange Trade System. Since China stunned financial markets by devaluing the yuan in August, the PBoC move would be to sell dollars to support the yuan. There hasn’t been any decisive intervention this week, but they may come back in after next week’s FOMC meeting. Uncontrolled yuan depreciation could hit commodity prices and emerging market currencies, meaning another round of sell-offs.
The probability of a rate hike at the Fed’s FOMC meeting on December 15-16 based on the 30-day prices of federal funds futures, traded on the Chicago Mercantile Exchange and commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, jumped to 81% from 79% from the previous week, according to data from the CME Group as of December 11.
A Fed rate hike could already be priced in, as the Fed funds futures contracts show less than 20% probability for no Fed rate hike. The tone of the Fed’s policy statement, either dovish or hawkish, could spark a big move in the global financial markets. The market is expecting a “one-and-done” rate hike event, for a considerable length of time.
Technically, the index broke down the ascending (ASC/B) wedge pattern in late November which triggered an avalanche sell-off to a projected price at 1,298, or the base of the wedge. There might be a tradable bottom, as the SET is oversold (RSI=16.30), meaning a near-term technical bounce. Nonetheless, the bearish lower low chart pattern, meaning every low (L) is lower than the previous low, persists and the next technical support is at around the 1,268 level.
|
