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The SET closed down 0.63% for the short trading week at 1,385.86 on Thursday, on the U.S. Federal Reserve's hawkish outlook and a sell-off in the bond market. The
USD/THB exchange rate was quoted at 35.676 baht per dollar on Friday, up another 0.65% for the week, while the
THB/JPY climbed 0.0224 yen per baht, or 0.73% for the week, to close at 3.0875 yen per
baht.
The U.S. dollar index, a weighted index of the value of the U.S. dollar relative to a basket of six major currencies, was up 0.74% for the week after U.S. Federal Reserve officials continued to talk up a rate hike, and the release of the minutes from the Federal Reserve's April policy meeting revealed that the U.S. central bank would likely raise interest rates in June, if supported by economic data.
At an event hosted by Politico in Washington D.C. on Tuesday, a duo of Federal Reserve officials, Atlanta Fed President Dennis Lockhart and his San Francisco Fed colleague John Williams, said that at least two interest rate increases may be warranted this year because the economy continues to expand and inflation is picking up. Mr. Lockhart added that the “Brexit” referendum in the U.K. wouldn’t prevent the Federal Reserve from taking action if policymakers deem it appropriate for the U.S. economy.
Both Fed officials have been doing a lot of talking since the U.S. dollar index plunged to a 15-month low on May 3, but Lockhart and Williams are not voting members of the Fed policy committee this year, meaning what they say has no impact on the Fed’s decisions.
New York Fed President William Dudley told reporters on Thursday that the Federal Reserve is moving closer to raising interest rates at one of its next two meetings and the fact this message is getting through to financial markets is welcome news. The S&P 500 plunged 1.06% to an intraday low after Dudley’s comment became published, but recovered from the loss during the late-session to close down just 0.37% on Thursday.
The central banks’ actions and statements, as well as uncertainty in the Thai economy, sent the Thailand 10-year bond yield jumping 17.78% for the week at 2.12% on Thursday, still down 15.78% year-to-date. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 1.844% on Friday, is 0.276 percentage points.
Since May 2015, the SET index and WTI crude oil price are highly correlated with a coefficient of 0.81 over a 200-day period, where 1 is total positive correlation. The WTI crude oil spot price ran up another 3.08% for the week to close at $48.48 per barrel on Friday, following a research note from analysts Damien Courvalin and Jeffrey Currie at Goldman Sachs on Sunday. Goldman Sachs now expects WTIC to reach $45 a barrel in the second-quarter and $50 a barrel in the second-half of the year. The weekly crude oil inventory reports were mixed.
The Energy Information Administration (EIA) weekly U.S. oil inventory report on Wednesday showed a build of 1.3 million barrels in the week ending May 13, compared to analysts’ expectations for a drawdown of 2.8 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed U.S. crude inventories declined by 1.1 million barrels.
The EIA also said the weekly U.S. crude oil production fell again for the sixteenth consecutive week, to 8.791 million barrels per day (bpd) for the week ending May 13, 2016, the lowest level since September 5, 2014, at 8.59 million bpd. Weekly U.S. crude oil output, however, has fallen 8.52% 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 remains unchanged at 318, an 80.24% drop from the peak number of 1,609 in October 2014.
From our technical viewpoint, the SET has been pulling back from the April high of 1,432.25 and a head and shoulders chart pattern has now emerged. Although a bullish golden cross, or the 50-day and 200-day SMA crossover, still remains intact, the reaction in the bond market was extremely bearish. There are supports at 1,376 and 1,369, or the neckline of the head and shoulders pattern, if the SET continues to pull back.
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