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The SET gained another 1.01% for the week, to close at 1393.41 on Friday. The USD/THB exchange rate was quoted at 35.04 baht per dollar on Friday, down 2.75% since the beginning of the year, while the CNY/THB has declined 3.12% year-to-date, to close at 5.3935 baht per yuan. The Thailand 10-year bonds were yielding at 1.97% at the close on Friday, down 21.83% year-to-date.
The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 1.98% on Friday, is –0.01 percentage points, meaning investors are willing not to be paid a premium to hold a Thailand 10-year bond over a U.S. 10-year Treasury Note, which is typically perceived as safer.
FX currency traders could be piling onto the Thai baht, as they are anticipating further appreciation against the U.S. dollar, ahead of the March 15-16 FOMC meeting.
The strong baht could be supported by comments from Bank of Thailand (BoT) Governor Veerathai Santiprabhob, who told reporters on Tuesday that fiscal policy is a more effective tool than monetary policy, hinting to not expect a rate cut from the BoT anytime soon. The BoT also said that the bank plans to lower its 2016 economic growth forecast again, from the 3.5% stated in December, due to increased downside risks, according to Bangkok Post.
In December, the BoT cut its 2016 economic growth estimate to 3.5% from 3.7% as the bank saw no growth in exports. The central bank will review its economic forecasts at the monetary meeting on March 23 and will release the results by March 31. The strong baht could spell trouble for Thai exports, since January exports to China, Thailand's second-biggest market after the U.S., dropped by 6.1% year-on-year in January, according to Bangkok Post. Shipments to Europe fell by 2.4%, while the U.S. and Japan saw bigger drops of 8.5% and 10.1%, respectively.
The European Central Bank (ECB) announced on Thursday, at the Governing Council meeting in Frankfurt, that the central bank raised monthly asset buys to 80 billion euros, from 60 billion euros, and cut its main refinancing rate to zero from 0.05%. It also cut its deposit rate by 10 basis points to -0.4%, and trimmed the marginal lending rate, used by banks to borrow from the ECB overnight, to 0.25% from 0.3%. The above-expectations QE came with a negative spin though, as ECB President Mario Draghi said after the ECB monetary policy meeting that the central bank doesn't anticipate that it will be necessary to reduce rates further.
On Monday, the General Administration of Customs of China said China's exports fell 25.4% year-on-year in February, while imports declined 13.8%. According to Reuters, the sharp decline in exports in February was the steepest since May 2009, mainly due to weak global demand and a business shutdown during the Lunar New Year holiday. Analysts had expected a 12.5% drop in February exports, and a 10.0% decline in imports.
The WTI crude oil price surged 1.24% on Friday, another 5.95% for the week, after the Paris-based International Energy Agency (IEA) said that oil prices might have bottomed as production declines in the U.S. and other non-OPEC producers accelerate and an increase in Iranian supply has been less than dramatic. Jeffrey Currie, Goldman Sachs' head of commodities research, issued a report on Tuesday saying that the recent rally in commodities is just a "mirage".
Lower demand for crude oil during the next few years prompted the U.S. Energy Information Administration (EIA) on Tuesday to trim 2016 U.S. oil demand growth by 80,000 barrels per day, or bpd, from 110,000 bpd, and cut its 2016 worldwide demand growth forecast by 90,000 bpd to 1.15 million bpd. The EIA now expects WTI crude oil prices to average $34.04 a barrel in 2016, and $40.09 a barrel in 2017.
From our technical viewpoint, the SET managed to close above the 200-day moving average, but pulled back slightly from overbought territory. The RSI registered at 77.44 on Monday, the highest level in 20 months. If market momentum and the Thai Baht remain strong, the SET could be in overbought territory for a while and we may possibly see a full retracement at 1,431.85. Money is pouring in from overseas, as the foreign investor’s net buys are 15.7 billion baht since the beginning of March, according to the SET’s data. The next support levels are 1,375.99 and 1,358, if the ascending wedge chart pattern breaks down.
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