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The Thailand SET dropped 2.17% during the last two days of the week to close at 1,276.49 on Friday, after Federal Reserve Chair Janet Yellen told the U.S. Congress during her two-day semiannual monetary policy report that overseas weakness and market distress could threaten the Fed's plans to raise the rate gradually this year and she was surprised by plunging crude oil prices. Ms.
Yellen, however, didn’t explicitly mention any delays to interest rate hikes during her testimony, meaning a March rate hike may be still on the table.
Comments and remarks from top U.S. Federal Reserve officials moved financial markets one way or the other. Last week on Tuesday, Kansas City Federal Reserve President Esther George, a voting member on the Fed's policymaking committee, said in prepared remarks before the Central Exchange in Kansas City, Missouri, that the central bank got a "late start" by raising its interest rate target in December, with more hikes to come. Her remarks sent the WTI crude oil price and the yield of the 10-year U.S. Treasury Note tumbling that day 5.14% and 5.08%, respectively.
Earlier this week, Deutsche Bank CoCo (contingent convertible bond) holders learned what banking regulators meant by risk. In theory, the CoCo bonds are supposed to help troubled banks hang onto cash in times of stress by skipping coupon payments without defaulting, and converting the debt to equity or writing it down. Things turned out differently though, as the yield on Deutsche Bank CoCos rose to about 11.7% during the week, from 7.5% at the start of the year, after the bank posted heavy losses for 2015. The rising yield triggered a sell-off in Deutsche Bank stock, which spilled over to the entire European and U.S. banking sectors, and dragged down the global financial markets.
Bangkok Bank
(SET:BBL), Siam Commercial Bank PCL (SET:SCB) and Kasikornbank PCL
(SET:KBANK) were swept along with other global financials stocks and went down 2.31%, 1.89% and 4.73%, respectively, for the week. Besides concerns about European bank troubles, Bangkok Bank investors may have a new worry as the Broadcasting and Telecommunications Commission
(NBTC) of Thailand just canceled Thai TV Co’s two digital TV licenses this week, after the company failed to pay its 288 million baht second installation and annual fees, according to the Nation. On February 2, the NBTC said the regulator might seek 1.63 billion baht from Bangkok Bank under the bank’s guarantee to Thai TV Co on behalf of Thai TV’s customers, if the company fails to pay the fees.
Concerns over global supply and a weakening economies due to the Fed’s rate hikes, sent the spot price of WTI crude oil tumbling 15.97% from last Friday, to a 12-year low of $26.05 a barrel on Thursday. Investors dumped shares in the energy sector, as PTT (SET:PTT) and PTT Exploration and Production (SET:PTTEP) shares were down 4.96% and 4.39%, respectively. According to the Bangkok Post last week, in the first quarter, PTT may revise its five-year operations and production capital expenditure budget downward again, if oil prices remain below $40 a barrel.
A sell-off in banking and energy stocks sent the SET nosediving 2.28% for the week, to close at 1,276.49 on Friday. The USD/THB and the CNY/THB exchange rates were quoted at 35.594 baht per dollar and 5.4144 baht per yuan on Friday, virtually unchanged for the week. The USD/THB dipped to intraday lows on February 11 at 35.19 baht per dollar and to 35.20 baht per dollar on Friday 12, but failed to retest the October 15 low at 35.11 baht per dollar. Currency traders at Kasikornbank forecast the baht will move in a range between 35.35 and 35.65 baht per dollar, according to Bangkok Post.
The Thailand 10-year bonds were yielding at 2.06% at the close on Friday, tumbling 9.65% from the previous week. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 1.75% on Friday, narrowed to 0.314 percentage points. Basically, capital flows could accelerate as the yields of the Thailand sovereign bond and the U.S. Treasury Note convergences. Foreign investors' net sells have been surging again to 14.58 billion baht since the beginning of the year, according to the SET data.
From our technical viewpoint, the SET was sent back into bear market territory, below the 50-day moving average (green-line), as the index was unable to break out the 1,313.29 level on Monday. The SET managed to bounce off the T2 trendline support at 1,270.84, or the 23.6% Fibonacci retracement level, and a bullish reverse head and shoulders chart pattern has now emerged. As long as the index stays within the T1 and T2 trendlines, there should not be any red flags. China's financial markets will re-open on Monday after being closed for the Golden Week holiday, so be prepared for more volatility.
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