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The SET closed down 0.16% in a short trading week, at 1,416.14 on Thursday, as the index was consolidating along the trendline support during the week. The iShares MSCI Thailand Capped ETF
[NYSEARCA:THD], traded on the NYSE Archipelago Exchange, ran up a combined of 2.31% on Thursday and Friday after European Central Bank
(ECB) President Mario Draghi said in the press conference after the ECB Governing Council meeting in Malta that the bank will re-examine whether to extend its 1.1 trillion euro bond-buying program at its December 3 meeting. The ECB left key interest rates unchanged at 0.05% as Mr. Draghi sees downside risks to growth and the inflation outlook.
In fact, October business growth in the eurozone was surprisingly strong as Markit's Composite Flash Purchasing Managers' Index, a measure of activity in the manufacturing and services sectors based on surveys of over 5,000 companies across the
eurozone, came in on Friday at 54.0 this month, up from September's 53.6, beating economists' forecast of a decline to 53.4. A reading above 50 indicates the expansion in the business sector.
The People’s Bank of China (PBoC) surprised the markets on Friday as the bank cut their benchmark interest rate and lending rate by 25 basis points. The PBoC said on its website that they will also cut the reserve requirement ratio
(RRR) by 50 basis points for all banks, effective October 24. The move came after the National Bureau of Statistics on Monday said China’s economic growth slowed to 6.9% in the third quarter of the year, the weakest quarter since the first quarter of 2009 during the global financial crisis.
Although the figure came in better than the growth forecast of 6.8% by economists at The Wall Street Journal, many believed that the actual growth could be one or two percentage points below the official figure. Other China economic data reported on Monday was industrial production, which grew 5.7% year-on-year, slower than the 5.9% growth expected. Fixed-asset investment came in below expectations at 10.3%, but retail sales match expectations with a 10.9% growth rate.
The
USD/THB exchange rate inched up 0.81% this week to settle at 35.55 baht per dollar on Friday, while the EUR/THB tumbled 2.11% to close at 39.167 baht per euro on Friday. The CNY/THB, which moves at the same pace as the USD/THB, rose 0.89% for the week to close at 5.5964 yuan per baht, as the PBoC continues to maintain its reference rate at around 6.4 yuan per dollar. The recently appointed Bank of Thailand (BOT) governor, Veerathai Santiprabhob, this week at his debut media briefing, gave no hint of any rate cut this year. In our opinion, the SET could continue to move higher if the USD/THB exchange rate stays at this level.
From our short-term technical viewpoint, the SET is moving in an ascending (ASC) wedge within a bullish higher low (H-L) chart pattern, meaning every low is higher than the previous low while every high is higher than the previous high. The SET is trading above the 50-day SMA (green line) and consolidating along the trendline support between 1,412 and 1,417.29, or the 38.2% Fibonacci retracement level, with all the major moving averages bending upward.
From our long-term technical viewpoint, a bullish descending broadening (DES/B) wedge has emerged with a breakout target at 1,442. There could be several head resistances at levels between 1,430.14, or the 100-day SMA, and 1,455.96, or 50% Fibonacci retracement.
The near-term headline risk is the October 27-28 U.S. Fed Meeting. A rate hike or hawkish comments out of this meeting could send a negative tone to the emerging markets. The 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, indicate 6% odds for a quarter-point rate hike at the October 28 policy meeting, according to data from the CME Group as of October 23.
One may also want to pay attention to the Bank of Thailand, as the bank has a weak baht policy. A strong baht could force the BOT to cut the rate at their next meeting. Thailand's central bank announced at the end of April that the bank encourages more capital outflows to weaken the baht. A rate cut could be negative for the SET.
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