SET Index Staged A V-Shaped Rebound But Still Faces Strong Baht Headwinds

Witawat (Ed) Wijaranakula, Ph.D.
Fri Mar 17, 2017

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

The SET index jumped 1.37% for the week, to close on Friday at 1,560.98, after the index bounced off the trendline support at 1,528.78, led by big cap and bank stocks, including Siam Cement PCL (SET:SCC), Siam Commercial Bank PCL (SET:SCB), Bangkok Bank PCL (SET:BBL) and PTT PCL (SET:PTT), up 2.67%, 2.27%, 1.65% and 1.54%, respectively for the week. 

Some forex sensitive stocks, including Airports of Thailand PCL (SET:AOT), Charoen Pokphand Foods PCL (SET:CPF) and Delta Electronics Thailand PCL (SET:DELTA), underperformed as AOT was up 0.65%, CPF and DELTA were down 1.77% and 3.77%, respectively. Selling could be exhausted after the sell-off began in early February. Sellers could come back however, and take the SET index down again to retest the trendline support at the ~ 1,545 level.

The USD/THB tumbled 1.47% for the week to close on Friday at 34.80, after the Federal Reserve raised its target federal funds rate on Wednesday by 25 basis points to a range of 0.75% to 1.0%. The Bank of Thailand, or BOT, said on Monday that the bank has not found any unusual capital movements and will keep monitoring the market, according to Reuters. The BOT also said a weaker baht is a normal response to expectations that the Fed may raise rates this time, but the opposite happened, though. The baht could soon retest the 34.50 level if the 34.80 support can't hold, but hopefully it can bounce from there. 

The U.S. Dollar index (DXY), essentially the USD/EUR exchange rate, closed at 100.11 on Friday, down about 1% for the week. Concerns are that the massive Trump spending cuts announced on Thursday, and the Fed rate hike, will put more stresses on the U.S. economy that is already weak. 

The yield of Thailand 10-year government bonds lost 1.77% for the week, at 2.78% on Friday, as investors continued selling Thailand sovereign bonds. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 2.501% on Friday, widened to 0.279 percentage points. The spot gold price jumped 2.4% for the week, to close at U.S. $1,230.20 per ounce on Friday, while the Japanese yen appreciated 1.86% against the U.S. dollar. 

The WTI crude spot price gained 1.69% for the week, closing at $49.31 per barrel on Friday, while the Brent crude spot price was up 0.94% for the week to close at $51.76 per barrel, after a bullish EIA weekly report. Crude prices responded mutedly to the Reuters report Friday saying that non-OPEC producers delivered 64% of pledged oil output cuts in February. The report also said Russia will cut output by the full amount it had pledged, which is 300,000 barrel per day, or bpd, by the end of April. A weak U.S. dollar might contribute to a jump in crude prices, but the correlation between crude oil prices and the dollar is poor. 

Traders were skeptical and are turning bearish on crude oil, as speculative short positions in WTI crude oil futures contracts held by money managers jumped to 128, 947 contracts as of March 14, 2017, an increase of 110% or 67,779 contracts from previous week, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. 

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies decreased by 0.237 million barrels to a near all-time high of 528.16 million barrels, excluding the Strategic Petroleum Reserve, in the week ending March 10, compared to the S&P Global Platts forecast for a stockpile increase of 3.5 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory decrease of 0.531 million barrels. 

Separately, the EIA said the weekly U.S. crude oil production increased 21,000 bpd for the week ending March 10, to 9.109 million bpd. U.S. crude oil output increased 61,000 bpd to an average of 9.058 million bpd in March, compared to a February average of 8.997 million bpd. Output has fallen about 5.65% 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 14 to 631, compared to 316, when the rig count hit the low on June 6, 2016.


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