The SET was drifting earlier this week by the headline news from Europe, Japan and the interest rate decision from the U.S. Federal Reserve due on Wednesday. The U.S. Federal Reserve concluded its two-day Federal Open Market Committee (FOMC) meeting and announced that they sharply downgraded their economic forecast for this year to between 1.8% and 2.0%, from the previous forecast in March of between 2.3% to 2.7%. Fed Chair Janet Yellen, however, sounded hawkish at the press conference as she said the rate hikes are coming. Ms. Yellen insisted the timing will be dependent on statistics in real time. 

Although, the Fed didn’t signal an imminent rate hike after the FOMC meeting, the SET was unable to break through the head resistance at 1,518.33 and ended up closing down 0.45% at 1,508.04 on Thursday. 

But here is the shocker that sent the SET reeling on Friday. The Public Health Ministry confirmed the first case of Middle East Respiratory Syndrome (MERS) virus infection in Thailand and said that they will do all they can to prevent the spread of the virus. The news might have already been out before the market close on Thursday, as the SET made an intra-day reversal and closed down for the day. 

According to the U.S. Centers for Disease Control and Prevention (CDC), MERS is a new type of viral respiratory illness that was first reported in Saudi Arabia in 2012. Most people infected with MERS-CoV developed severe acute respiratory illness, including fever, cough, and shortness of breath. Many of them have died.

The latest widespread outbreak of MERS, which has been going on in South Korea since May, has claimed 25 lives so far. A number of countries have issued travel warnings to South Korea, for which tourism revenue accounts for 1.3% of gross domestic product (GDP). The impact of MERS on the South Korea GDP is estimated to be about 0.4% in 2015, which prompted the South Korean central bank (BOK) to cut its benchmark interest rate last week by 25 basis points, to 1.5%.

More bad news on Friday for the SET also came from the Bank of Thailand (BOT), as it revised its 2015 GDP growth estimate downward to 3.0%, from an earlier forecast of 3.8% in March, citing weaker-than-expected export growth and decreasing inflation. The bank now forecasts exports to contract 0.5%, instead of growth of 0.8% projected in March. The headline consumer price index (CPI) is expected to drop 0.5% in 2015 while the core CPI for all items less food and energy is forecasted to rise 1.0%, citing slower- than-expected recovery and lower-than-expected global oil prices. The previous headline and core CPI was a 0.2% and 1.2% gain, respectively.

Investors were selling everything related to tourism on Friday due to the MERS news, as Thailand’s international tourism revenue accounts for as much as 7% of its GDP, according to the Tourism Authority of Thailand. Shares of Central Plaza Hotel [SET:CENTEL], Airports of Thailand [SET:AOT] were down 7.28% and 5.54%, respectively. Bumrungrad Hospital shares [SET:BH] were also down 6.5%. Selling of consumer stocks, such as Robinson Department Store [SET:ROBINS] which was down 4.76% on Friday, may be due to the BOT announcement and not MERS.

The USD/THB exchange rate closed on Friday at 33.65 baht per dollar, unchanged for the week. The 10-year Thailand Government bond yield tumbled 4.5% for the week to close at 2.97% on Friday. For more than six weeks, the yield spread between the U.S. 10-Year Treasury, yielding at 2.261%, and the Thailand 10-Year Government bond, seems to be pegged between 0.70% and 0.72%. The SET managed to close at 1491.46 on Friday, down 1.11% for the week.

From our technical viewpoint, the SET broke out of the falling wedge last week, but was unable to break through the 100-day SMA at 1,518.33, and the trendline resistance. The SET pulled back and bounced off the trendline supports. The concern is that the SET is moving in a bearish lower high (L-H) chart pattern since it peaked in February, meaning every high is lower than the previous high while every low is lower than the previous low. This lower high chart pattern signals a bearish downtrend, unless the SET is able to close above the H4 level, or 1,518.44. 

The SET head resistances are the 100-day SMA at 1,518.33, 38.2% Fibonacci retracement at 1,526.66, and the trendline resistance at the 1,530 level. In the case of a further pullback, there is a trendline support at the 1,480 level. Again, all bets are off if the SET drops below 1,469.11, or 61.8% Fibonacci retracement.

The headline risks for next week are MERS and the Greek debt crisis. Let’s wait and see how the Thailand authorities will deal with MERS next week. We expect that they will announce some type of plan to contain public fear, as fear could spread faster than the disease itself.

The Greek debt crisis is now in full-blown mode. Greece needs the funds to make a €1.5 billion repayment to the International Monetary Fund by June 30. On Friday, the ECB approved an increase of €1.75 billion in emergency loans to keep Greece’s banking system afloat. 

There will be an EU leaders emergency summit in Brussels on Monday, June 22 after talks between EU finance ministers in Luxembourg on Thursday, failed to bridge the gap between Greece’s leftist government and its lenders. This could be the last ditch attempt to save Greece from falling into a default. Some eurozone officials believe Greek Prime Minister Alexis Tsipras may want to strike a deal at the summit. 

Related Tickers [NYSE:THD] and [NYSE:TTF]