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The SET took a 1.62% nosedive on Friday, after the British unexpectedly voted to leave the European Union in a non-binding referendum, meaning the U.K. Parliament has the final say, not the voters. There could be more referendums coming. The British government now has to notify other EU members of its intention to activate Article 50, which gives the U.K. two years to negotiate a “withdrawal agreement.” Roughly two-thirds of all the laws that apply in the U.K. are linked to the
EU, so that too needs to be resolved before the U.K. may begin to renegotiate its trade deals with countries around the world.
The S&P ratings agency already said it will cut the British bond, or U.K. Gilt, rating from AAA. Financial institutions will begin to layoff their U.K. workers and leave London for Paris and Frankfurt. The transition will take years, while foreign investments in the U.K. will grind to a halt due to uncertainty. The move by the British voters wiped out about $2 trillion of global assets on Friday, as the markets are repricing U.K. risk. For the week, the SET pulled back just 0.57%, closing at 1,413.19 on Friday.
The USD/THB exchange rate was quoted at 35.217 baht per dollar on Friday, unchanged for the week, while the
THB/JPY printed at 2.9554 yen per baht, down another 2.11% for the week. The yen skyrocketed over 4.14% against the baht on Friday, as the Brexit vote put buying pressures on the Japanese yen and gold as safe-havens. The
USD/THB technical support is at 34.80 baht per dollar, while the
THB/JPY broke below the 3.07 yen per baht support level.
The Thailand 10-year bond yield sunk 2.86% for the week, at 2.04% on Friday, down 19.05% year-to-date. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 1.562% on Friday, widened to 0.478 percentage points. The global financial markets are nervous about what will happen next in the U.K., as the 10-year Japanese government bond
(JGB) yield dropped to negative 0.18% at the close on Friday, while the 10-year German bund yield printed at negative 0.033%, both near record lows.
The Bank of Thailand (BOT) said on Wednesday that it kept its benchmark interest rate unchanged at 1.5% for a ninth straight meeting, citing that uncertainty about the outcome of the U.K.’s referendum on Thursday was not the reason. The BOT also maintained its 2016 economic growth forecast of 3.1%, but revised the export forecast downward this year from a contraction of 2% to a 2.5% decline.
The Commerce Ministry of Thailand said on Friday that May exports fell 4.4% year-on-year, and 1.9% over the first five months of 2016. The Ministry also said that Britain's vote to leave the EU could continue to have an impact on Thai exports over the next few months.
Since May 2015, the Thailand SET has been positively correlated with the Brent crude oil price, the global benchmark, where the correlation coefficient between both of them is +0.89, over the 100-day period. 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 down 2.64% for the week, closing at $47.57 per barrel on Friday, while the Brent crude price was down 1.86% for the week to close at $48.44 per barrel, after mixed weekly crude oil inventory reports and risk repricing resulting from Thursday's U.K. referendum “leave” vote.
The Energy Information Administration (EIA) weekly U.S. oil inventory report on Wednesday showed a decline of 0.9 million barrels to 530.6 million barrels in the week ending June 17, compared to analysts’ expectations for a drawdown of 1.62 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed U.S. crude inventories surprisingly fell by 5.2 million barrels.
Separately, the EIA said the weekly U.S. crude oil production decreased by 39,000 barrels per day (bpd) for the week ending June 17, 2016, to 8.677 million bpd. Weekly U.S. crude oil output has fallen about 9.71% 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 down 7 from the previous week, for the third straight week, at 330, but still down 79.49% from the peak number of 1,609 in October 2014.
Just a reminder, the SET is strongly correlated to the Brent crude price. Thus, as the energy complex goes, so goes the SET.
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