Fed meeting tempers positive sentiments driving SET
The Stock Exchange of Thailand (SET) Index rose by 1.21 points, or 0.08 per cent, to 1,601.70 on Thursday morning.
The SET Index closed at 1,600.49 on Wednesday, up 13.51 points or 0.85 per cent. Transactions totalled THB92.93 billion with an index high of 1,601.09 and a low of 1,588.37, as the SET rose for the fourth straight day.
Krungsri Securities expected the index on Thursday to rise to between 1,608 and 1,615 points amid positive sentiment of the Centre for Covid-19 Situation Administration considering easing lockdown measures and a plan to administer 100 million Covid-19 vaccine doses on citizens today.
It added that the index also gained positive sentiment from foreign funds inflows for the third straight day in response to the SET’s “Thailand Focus 2021” virtual conference, which is being held until Friday.
“However, investors’ mass sell-offs of stocks to prevent risk before the US Federal Reserve’s annual meeting would pressure the index,” Krungsri Securities said.
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It recommended selective buying as an investment strategy:
▪︎ AOT, CPN, CRC, HMPRO, AAV, BA, MINT, CENTEL, AMATA and WHA, which would benefit from the country’s reopening.
▪︎ PSL, TTA and RCL, which would benefit from a rise in freight rated.
▪︎ PTT, PTTEP, TOP, PTTGC and BANPU, which benefit from rising oil price.
Baht expected to strengthen quickly in the short term
The baht opened at 32.71 to the US dollar on Thursday, unchanged from Wednesday’s closing rate.
The Thai currency is likely to move between 32.60 and 32.80 during the day, Krungthai Bank market strategist Poon Panichpibool said.
Poon expected the baht to strengthen in the short term amid hopes of an economic recovery.
The government might ease lockdown measures and foreign investors might invest in Thai stocks because the situation was stable and might be resolved soon.
Foreign investors also bought short-term bonds to gain profit from the currency.
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He said the weakening dollar had led to Asian currencies strengthening.
The dollar’s trend will be clear after the US Federal Reserve moves to decrease quantitative easing at the Jackson Hole Economic Symposium.
He said the baht had strengthened quickly because exporters had sold dollars, as they were surprised by the baht’s rebound.
The baht might slow down close to its support level of 32.50 to 32.60 to the US currency. The baht might strengthen to 32.25 if the baht went lower than its support level.
Poon was worried about the Covid-19 situation in Thailand, as he was not sure if the spread of the virus had been contained because enough proactive testing was not being done.
Poon added that the baht was likely to fluctuate and weaken as the situation was not clearly better.
Markets wrap: Stocks extend gain as not that many bears left
U.S. equities were higher on a quiet day of trading ahead of the Federal Reserves Jackson Hole symposium later this week.
The S&P 500 and Nasdaq 100 gained on Wednesday, with both indexes topping record highs. The financial and energy sectors led the gains as Treasury yields and crude oil advanced. Meanwhile, stocks in Europe drifted while a gauge of Chinese tech names struggled to extend a rally.
“There are not that many bears left,” Irene Tunkel, chief U.S. equity strategist at BCA Research, said by phone. Pullbacks like last week’s are becoming “shallower and shallower” as more people buy the dip, she said. “There is very, very strong buy-the-dip mentality.”
Company earnings, expanding vaccinations and support from monetary policy have helped repair sentiment in the face of climbing delta variant cases. However, the pace of the Fed’s plans to begin tapering its asset purchase program remains a key overhang, which traders seek to get more clarity on when Fed Chairman Jerome Powell speaks virtually on Friday.
Fiona Cincotta, a senior financial markets analyst at City Index, said investors have been “flip flopping” over whether the Fed will make a taper announcement, with current consensus expecting the Fed to delay an announcement until later in the autumn, given the rising covid cases.
Investors are hoping to gain more insight into the Fed’s thinking on monetary stimulus amid a takeoff in inflation but still-mixed economic reports. The latest data Wednesday showed orders placed with U.S. factories for business equipment unexpectedly stalled in July, marking a pause in a months-long buildup in capital investment.
“Visibility into getting enough product to satisfy demand is a challenge. Managing one’s own rising cost pressures and labor shortages are another,” said Peter Boockvar, Bleakley Advisory Group chief investment officer, noting the recovery’s uncertainty. “On the other hand, for those thinking longer term, capital investments must take place.”
WTI crude oil gained, adding to Tuesday’s best two-day rally since November 2020. Gold fell below $1,800. The dollar was little changed.
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Here are some events to watch this week:
– Bank of Korea policy decision; briefing by Governor Lee Ju-yeol Thursday
– Fed officials attend the Jackson Hole Economic Policy Symposium from Thursday through Saturday
– U.S. GDP, initial jobless claims Thursday
– July U.S. personal income and spending data Friday. Investors will scrutinize the personal consumption expenditures price index, an inflation measure closely watched by the Fed.
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Some of the main moves in markets:
– – –
– The S&P 500 rose 0.2% as of 4 p.m. New York time
– The Nasdaq 100 was little changed
– The Dow Jones industrial average rose 0.1%
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– The MSCI World index rose 0.2%
– – –
– The Bloomberg Dollar Spot Index was little changed
– The euro rose 0.1% to $1.1771
– The British pound rose 0.2% to $1.3760
– The Japanese yen fell 0.3% to 109.99 per dollar
– – –
– The yield on 10-year Treasuries advanced five basis points to 1.34%
– Germany’s 10-year yield advanced six basis points to -0.42%
– Britain’s 10-year yield advanced six basis points to 0.60%
– – –
– West Texas Intermediate crude rose 1.1% to $68.30 a barrel
For Fed taper, forget when it starts. Its the end that matters.
These days, all the talk in financial markets is about when the Federal Reserve will start paring its debt purchases. Whats more important, for everything from stocks to bonds to currencies, is when they will end.
There have been few major moves ahead of the Kansas City Federal Reserve Bank’s virtual Jackson Hole symposium, where Chair Jerome Powell on Friday may provide insight into how and when officials will start pulling back its bond market support. That will set the timetable for how soon the Fed will raise interest rates.
The stakes are high, with the gusher of cash awash in the financial system driving U.S. stocks to record highs and Treasury yields holding just above six-month lows. Pulling back too quickly could derail the economic recovery just as the surge in the delta variant is posing a new risk. Moving too slowly could fuel the inflation pressures unleashed by the reopening from the pandemic.
“The key for markets is how quickly the Fed removes the accommodation, because that dictates how soon until we have none, which then translates into when the first rate hike comes,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter.
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The Fed is currently buying $80 billion a month in Treasuries and $40 billion of mortgage-backed securities, which the bank is expected to wind down before it raises interest rates. It has said it will hold those purchases steady “until substantial further progress has been made toward its maximum employment and price stability goals.”
When the Fed unwound a similar $85 billion-a-month program in the aftermath of the last recession, it took 10 months. The reductions were announced in December 2013 and began the following month, with the Fed detailing cuts by $10 billion at each policy-setting meeting, divided evenly between Treasuries and mortgage bonds. The Fed wrapped up all the buying in October 2014 and went on to lift rates in December 2015 after keeping them steady for seven years.
Essaye sees it mostly likely that tapering begins in December and doesn’t finish until the end of 2022, which he said will help fuel more gains in stocks and commodities and send the 10-year yield toward 2%.
Money-market traders are currently pricing in that the Fed will first increase rates the first quarter of 2023 — with the funds rate peaking at about 1.4%.
“When the Fed actually announces the taper, it will likely also give some degree of information on what pace it will take and how flexible or inflexible they want to be with the process,” said Guneet Dhingra, head of U.S. interest-rate strategy at Morgan Stanley. “That could provide a key signal for the rate-hike cycle — particularly with regard to the pace of the hikes.”
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Ten-year Treasury yields have drifted steadily downward since March and are now around 1.3%, not far from record lows, amid concerns that the resurgent pandemic in the U.S. could dampen the recovery. The gap between long- and short-term yields has also narrowed since hitting a more than five-year high in March, a sign of speculation that the Fed will start to withdraw its stimulus. The prospect of higher rates has boosted the dollar, driving the currency this month to its highest since November, according to the Bloomberg Dollar Spot Index.
Morgan Stanley forecasts that 10-year Treasury yields will end the year at 1.8%, with the Fed beginning to taper in January and ending in October. The firm predicts the Fed’s first rate hike will come in the second quarter of 2023.
Steven Barrow, Standard Bank Group’s head of G-10 strategy, said there is more risk if the Fed delays its tapering than if it moves too soon. He said a delay could force the central bank to raise rates within just months of ending its bond purchases, which could rattle financial markets and fuel a retreat from risk that would send investors into havens like the Japanese yen and the Swiss franc.
“It would be dangerous for the Fed to do this because it needs to be in a position — from the middle of next year — to start putting out the rhetoric that they maybe raising rates,” Barrow said. “And we know it’s not out of the realm of possibilities that the Fed could lift rates some time around the end of next year. So I’m focused more on the end point for Fed tapering than the starting point.”
St. Louis Fed President James Bullard says he would like to see the tapering end by the first quarter of 2022. Atlanta Fed’s Raphael Bostic said it should start after a few more strong job reports and wrap up faster than in past episodes.
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There’s more at stake in normalization this time around as the backdrop of near-zero rates and easing is joined by a historic debt overhang and near-record duration, indicating how sensitive the bond market is to changes in rates. That’s a risk that extends into equities, even tech stocks that soared after the onset of the pandemic. The cheap money that’s been plowed into markets globally, driving down bond yields, has stoked a search for yield that has raised signs of bubbles nearly everywhere.
“Liquidity on the margin is what matters in these markets,” said George Goncalves, head of U.S. macro strategy at MUFG Securities Americas. “So the taper will effect periphery assets, beginning with cryptocurrencies and including certain stocks and high-yield debt, more than Treasuries. These securities will have to stand on their own.”
THB1.2bn rescue fund for Thailand’s micro to medium-sized businesses
The Small and Medium Enterprises Promotion board on Wednesday approved a budget of 1.2 billion baht to help micro-entrepreneurs and small to medium-sized businesses (MSMEs) survive the Covid-19 crisis.
The board, chaired by PM Prayut Chan-o-cha, set aside 1.225 billion baht to aid MSMEs, which have been hit hard by the pandemic and restrictions.
Prayut also ordered rapid development of Single Sign On (SSO), a database platform to facilitate the exchange of services and information between SMEs.
The PM also proposed amending the SME promotion law to accommodate changes to business operations post-Covid-19.
SET rises above 1,600 points after 4th straight day of gains
The Stock Exchange of Thailand (SET) Index closed at 1,600.49 on Wednesday, up 13.51 points or 0.85 per cent. Transactions totalled THB92.93 billion with an index high of 1,601.09 and a low of 1,588.37, as the SET rose for the fourth straight day.
In the morning session, Krungsri Securities forecast the index on Wednesday would fluctuate between 1,580 and 1,600 points, citing the rising oil price and hopes that Thai lockdown restrictions will be eased amid the falling Covid-19 caseload.
However, it predicted the index would be under pressure from investors selling off shares to cut risk ahead of the US Federal Reserve’s annual meeting, as well as risk from the resistance level of 1,600 points.
The 10 stocks with the highest trade value today were KBANK, 7UP, PTT, EA, TTA, PTTGC, GPSC, CBG, KCE and HANA.
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Other Asian indices were mixed:
Japan’s Nikkei Index closed at 27,724.80, down 7.30 points or 0.026 per cent.
China’s Shanghai SE Composite Index closed at 3,540.38, up 25.91 points or 0.74 per cent, while the Shenzhen SE Component Index closed at 14,697.50, up 33.95 points or 0.23 per cent.
Hong Kong’s Hang Seng Index closed at 25,693.95, down 33.97 points or 0.13 per cent.
South Korea’s KOSPI closed at 3,146.81, up 8.51 points or 0.27 per cent.
Taiwan’s TAIEX closed at 17,045.86, up 227.13 points or 1.35 per cent.
Job figures improved in the second quarter of 2021 but unemployment remains high due to the Covid-19 crisis, the National Economic and Social Development Council (NESDC) said on Wednesday.
Second-quarter employment rose by 2 per cent year on year, with farm and non-farm employment rising 2.4 per cent and 1.8 per cent, respectively.
Rising employment in the construction, hotel, restaurants and logistics sectors was offset by falls in manufacturing and retail.
A gradual rise was seen in export businesses, such as computer, electronics, rubber products and auto manufacturing.
However, unemployment remained high, with 730,000 people or 1.89 per cent jobless, said NESDC secretary-general Danucha Pichayanan.
Of them, 290,000 were new graduates and 440,000 had been laid off.
He said 310,000 people, or 2.8 per cent of social security recipients, had claimed unemployment assistance in the second quarter.
Many workers had been affected by the economic impact of Covid-19 restrictions, said Danucha.
The 29 provinces under lockdown measures have 10.2 million workers but only 5.5 per cent of these were able to work from home, he added.
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The government should subsidise wages for the self-employed, 7.3 million of whom would be affected by the restrictions, said the NESDC chief.
“The government should also launch guidelines to help the unemployed become self-employed,” he added.
SET gets a lift from hopes of lockdown being eased
The Stock Exchange of Thailand (SET) Index rose by 6.49 points, or 0.41 per cent, to 1,593.47 on Wednesday morning.
The SET Index closed at 1,586.98 on Tuesday, up 4.91 points or 0.31 per cent. Transactions totalled THB100.70 billion with an index high of 1,598.39 and a low of 1,585.46.
Krungsri Securities forecast the index on Wednesday would fluctuate between 1,580 and 1,600 points amid hopes that the lockdown would be eased due to a decline in domestic Covid-19 cases, as well as the rising oil price.
However, it predicted that the index would be under pressure due to investors’ mass sell-offs of shares to prevent risks before the US Federal Reserve’s annual meeting, as well as risk at the resistance level of 1,600 points.
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It recommended selective buying as an investment strategy:
▪︎ AOT, CPN, CRC, HMPRO, AAV, BA, MINT, CENTEL, AMATA and WHA, which would benefit from the country’s reopening.
▪︎ PSL, TTA and RCL, which would benefit from a rise in the freight rate.
▪︎ PTT, PTTEP, TOP, PTTGC and BANPU, which benefit from rising oil price.
Gold edges lower in Thailand, HK despite Comex demand spike
The price of gold dropped by THB100 on Wednesday morning.
AGold Traders Association report at 9.22am said the buying price of a gold bar was THB27,950 per baht weight and selling price THB28,050, while gold ornaments were priced at THB27,439.60 and THB28,550, respectively.
At close on Tuesday, the buying price of a gold bar was THB28,050 per baht weight and selling price THB28,150, while gold ornaments were THB27,545.72 and THB28,650, respectively.
Spot gold price on Wednesday morning was moving at around US$1,795 (THB59,127) per ounce after Comex gold rose by $2.20 to $1,808.50 per ounce at close on Tuesday, due to support for buying gold as a safe-haven asset amid concerns over the effects of the Covid-19 Delta variant. Meanwhile, investors are monitoring the US Federal Reserve annual meeting in Jackson Hole, Wyoming from August 26-28 for indicators of its monetary policy direction.
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Hong Kong gold price, meanwhile, dropped by HK$50 to $16,680 (THB70,581) per tael, the Chinese Gold and Silver Exchange Society reported.
Baht gains amid change in perception on Covid situation
The baht opened at 32.88 to the US dollar on Wednesday, strengthening from Tuesday’s closing rate of 32.92, the strongest in almost a month.
The Thai currency is likely to move between 32.80 and 33.00 during the day, Krungthai Bank market strategist Poon Panichpibool said.
Poon explained that investors had changed their views on the Covid-19 situation, which had led to the weakening of the dollar.
The baht may strengthen in the short term on hopes that the situation in Thailand was likely past its worst point, attracting foreign investors to invest in Thai stocks.
The Thai currency might slow down close to its support level of 32.80 to the US currency, the price range importers are waiting for to buy dollars, he said.
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The baht will stay around this level as investors are buying up the US currency as the month draws to a close.
However, Poon believed the baht was likely to fluctuate and weaken as the situation was not clearly better. The baht has also been affected by the strengthening dollar.
If the situation worldwide does not improve along with the US Federal Reserve’s move to reduce quantitative easing (QE), stock prices might be affected, Poon noted.
Foreign investors will temporarily decrease investments in Asian emerging markets as they might be worried about the effects of a reduction in QE, much like the QE “taper tantrum” in 2013, he added.
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