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The Thailand SET was on a roller coaster ride this week, as all eyes were on the European Central Bank
(ECB), crude oil prices, China, and Davos, Switzerland. The SET surged 1.8% on Friday after the WTI crude oil price skyrocketed 5.37% on Thursday in New York due to short-covering, after ECB President Mario Draghi signaled at the press conference following their Governing Council meeting in Frankfurt that the bank may provide more stimulus in March, citing the outlook for inflation had weakened “significantly.”
Leading the charge on Friday were beaten down energy stocks, including PTT Exploration and Production plc
[SET:PTTEP] and PTT plc [SET:PTT], which were up 12.87% and 6.89%, respectively. Retail investors were selling into the rally, as they aren’t convinced that the rally will last. Shares of Krung Thai Bank Pcl
[SET:KTB] bounced 4.17% on Friday despite Thursday's report that for 2015, the bank posted a 14% drop in net profits to 28 billion
baht, with non-performing loans (NPL) rising 32.8% to 76 billion
baht, or 3.2% of total lending. For the week, the SET closed up 1.78% at 1,268.03.
Earlier in the week on Tuesday, China’s National Bureau of Statistics
(NBS) said the Chinese economy grew at a 6.8% pace in the fourth-quarter, in-line with analysts' expectations. China's fourth-quarter GDP is their lowest quarterly expansion since the global financial crisis in 2009. Full-year economic growth for 2015 came in at 6.9%, the lowest since 1990. Separately, the NBS said China’s industrial production in December rose 5.9% from a year ago, while retail sales increased 11.1%, compared with forecasts of increases of 6.0% and 11.3%, respectively.
The SET ran up 1.68% on Tuesday, closing at 1,266.01, on hopes for more stimulus from the People’s Bank of China
(PBoC), but trended lower mid-week in whipsaw trading along with crude oil prices, as more negative headline news emerged.
According to Bloomberg, the Chinese central bank has already injected more than 1.3 trillion yuan ($198 billion) into the economy via reverse repurchase agreements, or reverse
repos, since mid-January, equivalent to about a 1 percentage point cut to the banks’ required reserve ratios
(RRR). The PBoC is flooding the financial system with liquidity to keep borrowing costs from climbing by setting repo rates, lending rates that banks charge one another, close to the market level.
China bears were out in full force after the release of the NBS data. According to CNBC, "Nobody knows for sure, but when we look at things that are harder numbers to fudge... our estimate is growth probably about 3.5% versus roughly 7," said Gary Shilling, president of economic research firm A. Gary Shilling and Co. Shilling models his possible GDP growth for China on measures such as rail traffic, electricity consumption, coal consumption and debt. The question now becomes whether investors should believe China’s hard data, or data from sell-side economic research boutiques.
The International Monetary Fund (IMF) added fuel to the market turmoil on Tuesday, as the fund cut its world economic growth forecasts to 3.4% in 2016 and 3.6% in 2017, down 0.2 percentage points for both years from the previous estimates made last October. The IMF said it expects China's economy to slow down to 6.3% in 2016.
The SET, along with the Asian markets, also got spooked by comments on Thursday from hedge fund manager George Soros during an interview with Bloomberg at the World Economic Forum in Davos. Soros claims that China’s economy is headed for a hard landing, a slump that will worsen global deflationary pressures, drag down stocks and boost U.S. government bonds. China’s economic downturn will have spillover effects on the rest of the world, he added. Soros said he is shorting the S&P 500 Index, commodity-producing countries and Asian currencies.
In 1997, Soros shorted the Thai baht and triggered the Asian financial crisis, after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar.
The Thai baht appreciated against the greenback and the yuan after Bank of Thailand Governor Veerathai Santiprabhob told Reuters in an interview on Tuesday that the bank doesn't see any need to change the current monetary policy framework that it has. The USD/THB exchange rate was quoted at 36.026 baht per dollar on Friday, down 0.92% for the week, while the CNY/THB slid 0.9% to close at 5.4693 baht per yuan.
The Thai 10-year bonds were yielding at 2.49% at the close on Friday, up 0.81% from the previous week. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 2.057% on Friday, narrowed to 0.433 percentage points. Foreign investors' net sells are 10.536 billion baht since the beginning of the year.
Technically, the SET continues to trade in bear market territory, below the 1,295.82 level. Bank of Japan Governor Haruhiko Kuroda said during an interview with Bloomberg in Davos on Friday that the Bank of Japan (BOJ) is prepared to expand bond purchases if necessary to achieve its 2% inflation target. Kuroda’s comment, which sent the WTI crude oil price skyrocketing 8.04% on Friday on short-covering, to close above $32 per barrel in New York, could fuel another short-covering rally in the Asian markets on Monday and a technical breakout of the SET. The iShares MSCI Thailand Capped ETF [NYSEARCA:THD] was up 2.61% on Friday, closing at $58.63 a share.
After weeks of turmoil in the financial and crude oil markets, the Fed's so-called "Dot Plot" is starting to look shaky, as the Federal Reserve Bank of San Francisco's Williams said last Friday that four rate hikes in 2016 are "not baked in the cake". St. Louis Fed President James Bullard turned less hawkish and said in his prepared remarks to the Economic Club of Memphis last Thursday that the latest plunge in crude prices has implications for monetary policy in the United States, according to CNBC.
The Fed will meet on Tuesday and Wednesday next week. “There is a good chance the January statement will be less dovish than market participants hope,” said Michael Hanson, economist at Bank of America Merrill Lynch in a MarketWatch report on Sunday. Economists such as this have been wrong before, and they could be wrong again.
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