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The SET closed at 1,390.32 on Friday, up 0.62% for the week after the Bank of Thailand (BOT) decided on Wednesday to kept its benchmark interest rate unchanged at 1.5%, citing a weak baht and recently unveiled stimulus measures that should be supportive of economic growth. Seventeen economists surveyed by Bloomberg predicted no rate cut, while three forecasted a quarter of a percentage point cut.
Earlier this month, the Thai government approved two stimulus packages worth a total of 342 billion baht, or about 2.62% of Thailand's 2014 GDP. The University of the Thai Chamber of Commerce said last week that the stimulus could boost economic growth by 0.7-1.0 percentage point this year and revised its Thai gross domestic product (GDP) to 3.1% for 2015, from the previous forecast of between 2.5-2.9%.
Separately, the U.S. Federal Reserve decided to hold off a rate hike and maintain their zero interest rate policy after its Federal Open Market Committee (FOMC) Meeting on Thursday, noting the economic slowdown in China and emerging markets as the reason for the delay. The Federal Reserve also revised U.S. GDP to 2.1% for 2015, up from the June forecast of 1.9%, and downgraded the 2016 GDP to 2.3% from the 2.5% projection in June. The Federal Reserve now sees inflation back to 2% by 2017, or later.
The decision by the Federal Reserve not to hike the rate was widely expected as many Wall Street economists, including Barclays U.S. economists Michael Gapen and Rob Martin, projected the timing for the first Federal Reserve interest rate hike to be March 2016, citing volatile market conditions due to anxiety about the Chinese economy. According to data compiled by Bloomberg prior to the FOMC meeting, the odds of an increase in September had fallen this week to 26%, down from 40% when the survey was done at the end of July.
The monetary rate decisions by the BOT and the U.S. Federal Reserve sent the yield of the Thailand 10-Year Government bond tumbling 9.97% for the week, to 2.8% on Friday. The yield spread between the U.S. 10-Year Treasury Note, yielding at 2.134% at the close on Friday, and the Thailand 10-Year Government bond has now widened to 0.667 percentage points. Both the USD/THB and EUR/THB exchange rates, quoted on Friday at 35.647 baht per dollar and 40.304 baht per euro, respectively, moved 1.06% and 1.35% lower for the week, respectively.
The Thai baht could gain further strength against the U.S. dollar as on October 1, when the 2016 fiscal year starts, the U.S. government will shut down unless Congress and the White House can agree on a bill that would keep money moving from the Department of the Treasury to the federal agencies and programs it funds. The U.S. debt ceiling deadline may also prevent the U.S. Federal Reserve to make any move until the Congress and the White House can agree on the terms of raising the nation’s debt limit, which could be between mid-November and early December or when the Treasury Department starts to run out of cash.
The foreign investors’ selling seems to have subsided substantially for the SET, with net sells so far this month of only 5.05 billion baht. The year-to-date foreign investors’ net sells top 91.4 billion baht, up over 2,300% from the same period last year. The good news is that Thai institutional investors are continuing a buy.
Technically, the SET broke out the trendline resistance, but is stuck under the 1,401 resistance level. The SET is moving in a bearish ascending wedge with a 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 higher low chart pattern, which signals a bullish uptrend, is confirmed if the SET can close above the 1,401 level. Also noticeable is that the 50-day SMA is now turning downward and running in parallel to our trendline. Interesting, isn’t it?
Three things to watch are the bond market, the Thai baht and the Shanghai composite index. The big move in the bond market this week was hopefully just a relief rally and not turn into something else bad. The Thai baht could pull back to the trendline support at 34.5 baht per dollar, after a parabolic move earlier this month. The Shanghai composite index has traded sideways for over a month, at around the 3,137 level, and may soon break out to the upside. |
