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The SET closed at 1412.55 on Monday, down 1.78%, after the Commerce Ministry said that exports contracted for the sixth consecutive month in June, by 7.87% year-over-year to U.S. $18.16 billion, missing the consensus estimate of a 4.6% decline according to the Financial Times. Imports also shrank, by 0.21% year-over-year in June to U.S. $18.01 billion, versus expectations of a 7.35% fall. The trade surplus narrowed to U.S. $150 million in June from a U.S. $2.4 billion surplus recorded in the previous month. Analysts at the Financial Times were expecting a U.S. $1.99 billion surplus. While the Bank of Thailand is maintaining a weak baht policy, Thailand could run a risk of importing inflation, if the trade surplus turns into a trade deficit.
Part of the SET sell-off could be related to the Shanghai composite index’s meltdown, which plunged 8.48% to close at 3,725.56 on Monday, after reports said that brokerages, who have been extending credit during the crisis, have begun restricting margin trading. The news sparked panic selling, especially among China's neophyte retail investors. The IMF urged China last week to exit measures to prop up stocks but no one seems to be listening. The bottom line is that if you are betting big on China, stop doing it.
The USD/THB exchange rate firmed up slightly due to a weaker dollar and was trading around 34.865 baht per dollar. The 10-year Thailand Government bond yield printed at 2.82% as of 13:01:23 GMT on Monday. The yield spread between the U.S. 10-Year Treasury Note, yielding at 2.225% as of 17:30:06 GMT on Monday, and the Thailand 10-Year Government bond, widened to 0.595%. The U.S. FOMC meeting on July 28-29 may provide some direction on the interest rate and yield of the U.S. 10-Year Treasury Note.
From our technical viewpoint, the SET is now supported by the 1,412 level and the near-term supports are 1,394 and 1,375.99. The relative strength index (RSI) at 22.51 and the Moving Average Convergence/Divergence (MACD) at –17.599, points to extremely oversold conditions. The SET could hit a near-term bottom when the MACD approaches extremely bearish downside momentum at about –20.
A bullish trend reversal might not happen until the Thai baht stops falling further, and foreign investor net buys are established. Our near-term target for USD/THB is 35.2 baht per dollar with the long-term head resistance, February 2009, at 36.31 baht per dollar. |
