SET Index Turns Bearish Ahead Of President Trumpís Address To Congress

Witawat (Ed) Wijaranakula, Ph.D.
Fri Feb 24, 2017

Related Ticker: iShares MSCI Thailand Capped ETF (NYSEARCA:THD)

The SET index lost another 0.84% for the week, to close on Friday at 1,564.59, led to the downside by currency sensitive stocks, including Airports of Thailand PCL (SET:AOT), Charoen Pokphand Foods PCL (SET:CPF) and Thai Airways International PCL (SET:THAI), down 3.13%, 4.42% and 9.72%, respectively. The USD/THB exchange rate inched another 0.23% lower for the week, to close on Friday at 34.875 baht per dollar, as the Thai baht continues to gain strength against the U.S. dollar, appreciating 2.65% year-to-date. 

The Bank of Thailand, or BOT, said they are tracking short-term capital inflows which are causing the baht currency to strengthen but the bank is not worried at this point, according to The Bangkok Post. From the Relative Strength Index, or RSI, the SET index could bounce from here, or else retest the 1,552 level.

The yield of Thailand 10-year government bonds was unchanged for the week, to close at 2.68% on Friday. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 2.315% on Friday, widened to 0.365 percentage points. 

The U.S. Dollar index (DXY), a measure of the U.S. dollar value relative to a basket of foreign currencies, closed at 101.09 on Friday, up another 0.14% for the week, ahead of President Trumpís address to Congress on Tuesday. The Fed minutes from the January FOMC meeting, released on Wednesday, revealed that the Fed committee had concerns about dollar appreciation and the downside risks of expectations for long-term inflation. 

The spot gold price soared 1.55% for the week, to close at U.S. $1,258.30 per ounce on Friday, while the Japanese yen was up 0.2% against the U.S. dollar. Investors rushed to safe-havens after a poll showed French far right leader Marine Le Pen would win 27.5% of the vote in the April 23 first round of the France presidential election, up 2.5 percentage points from the last time the poll was conducted on February 4, according to Reuters. 

The WTI crude spot price inched up 0.39% for the week, closing at $53.99 per barrel on Friday, while the Brent crude spot price gained 1.08% for the week to close at $56.33 per barrel, despite the bullish EIA weekly report on Thursday. The EIA data could be misleading though, as traders are starting to ship crude out of inventories to refineries, or exports, since the rising price of oil for near-term delivery reduces their profits, according to Reuters. To make money by holding crude, the spread between oil prices for the future months needs to be wide enough to cover the cost of leasing tank space and borrowing money to buy the fuel to fill it. Speculative long positions in WTI crude oil futures contracts held by money managers totaled 448,846 contracts as of February 21, 2017, another record high, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. 

The EIA weekly U.S. oil inventory report on Thursday showed that domestic crude supplies increased by another 564,000 barrels to a record 518.68 million barrels, excluding the Strategic Petroleum Reserve, in the week ending February 17, compared to The Wall Street Journal forecast for a stockpile increase of 3.4 million barrels. The American Petroleum Institute, or API, inventory data on Wednesday showed a U.S. crude inventory declined of 884,000 barrels. 

Separately, the EIA said the weekly U.S. crude oil production decreased 24,000 barrels per day, or bpd, for the week ending February 17, to 9.00 million bpd. U.S. crude oil output increased 26,000 bpd to an average of 8.968 million bpd in February, compared to a January average of 8.942 million bpd. Output has fallen about 6.59% from the peak level of 9.60 million bpd in June 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count rose another 5 to 602, compared to 316, when the rig count hit the low on June 6, 2016. 


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