The SET pulled back 0.5% for the week, closing at 1,429.21 on Friday, after Federal Reserve Chair Janet Yellen continued her double-speak on Monday about the U.S. economic outlook and the prospects of interest rate hikes. Yellen shrugged off the worse-than-expected May U.S. nonfarm payrolls report last Friday and insisted that gradual increases in the federal funds rate are likely to be appropriate. She remained vague about the timing of a next rate increase, though.

The USD/THB exchange rate was quoted at 35.269 baht per dollar on Friday, down another 0.31% for the week, while the THB/JPY printed at 3.0325 yen per baht, up 0.68% for the week. The USD/THB technical support is at 35.20 baht per dollar, while the THB/JPY broke below the 3.07 yen per baht support level.

The Thailand 10-year bond yield tanked 6.31% for the week, at 2.08% on Friday, down 17.46% year-to-date. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 1.644% on Friday, narrowed to 0.436 percentage points. The global financial markets are getting nervous, as the 10-year Japanese government bond (JGB) yield dropped to negative 0.151% at the close on Friday, while the 10-year German bund yield printed at 0.019%, both record lows.

The International Monetary Fund (IMF) said on Wednesday that the recovery of the Thailand economy is expected to continue, but at a modest pace and subject to downside risks. The IMF forecasted Thailand GDP growth of 3.0% in 2016 and 3.2% in 2017, still below most other ASEAN economies and Thailand's historical record. The IMF urged the Bank of Thailand (BoT) to cut interest rates in the face of a sluggish economy and low inflation. The BoT has said repeatedly that such a move isn’t necessary, as easing would provide limited support to the economy because the slowdown was partly due to global and domestic structural problems.

Since May 2015, the Thailand SET has been positively correlated with the Brent crude oil price. Traders, including algorithmic and high-frequency traders (HFT), may be creating greater profit opportunities by coupling the volatility and price swings in the crude oil futures market with the SET index.

The WTI crude oil spot price was unchanged for the week, closing at $48.88 per barrel on Friday, while the Brent crude price inched up 1.03% for the week to close at $50.39 per barrel, despite supply disruptions caused by multiple attacks on key pipelines and facilities by a militant group earlier in the week, and bullish weekly crude oil inventory reports. 

The Energy Information Administration (EIA) weekly U.S. oil inventory report on Wednesday showed a decline of 3.2 million barrels to 532.5 million barrels in the week ending June 3, compared to analysts’ expectations for a drawdown of 2.7 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed U.S. crude inventories decreased by 3.56 million barrels.

There are signs that the U.S. is ramping up its crude oil production, which will add to the inventory glut. The EIA said the weekly U.S. crude oil production increased by 10,000 barrels per day (bpd) for the week ending June 3, 2016, after eighteen consecutive weeks of declines, to 8.745 million bpd. Weekly U.S. crude oil output has still fallen about 9% from the peak level of 9.61 million bpd during the week ending June 6, 2015. 

Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 3 from the previous week, for the second straight week, at 328, but still down 79.61% from the peak number of 1,609 in October 2014. No one knows how many additional bpd will be produced, as there is no direct correlation between crude oil production and the number of rigs. One can imagine that the most productive ones would be brought back into operation first.

From our technical viewpoint, the SET made a small pullback, but dropped below technical support at the 1,431 level. The next support levels are 1,412 and the 50-day moving average at 1404. The June FOMC meeting should be a non-event, but who knows. Any rate hike after July could be a high-risk move, unless the Fed wants to be accused of being politically incorrect in an election year. iShares MSCI Thailand Capped ETF (NYSEARCA:THD), which is traded on the New York Stock Exchange, was down 1.64% on Friday, pointing to a lower opening of the SET on Monday, but that is no guarantee.

THAILAND SET INVESTMENT RESEARCH