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Bank of Thailand leaves policy rate unchanged

EconNov 18. 2020Titanun Mallikamas, Secretary of the Monetary Policy Committee (MPC) 

By The Nation

At a meeting on Wednesday, the Bank of Thailand’s Monetary Policy Committee (MPC) voted unanimously to maintain the policy rate at 0.5 per cent to support economic recovery, while placing emphasis on more targeted measures, MPC secretary Titanun Mallikamas said.

The committee believes that despite the recent better-than-expected results, the Thai economy will recover slowly and will need support from continued low policy rate. 

As economic recovery will remain fragile and highly uncertain, the committee voted to maintain the policy rate and preserve limited policy space in order to act at the appropriate and most effective timing. 

The Thai economy showed better than expected improvement in the third quarter of this year. However, recovery is expected to remain slow and vary significantly among different sectors. 

Overall, the economy is projected to take approximately two years before it returns to pre-pandemic levels.

Consequently, the labour market will remain fragile as labour incomes remain low. This in turn will weigh on private consumption, particularly among low-income households following the phase-out of temporary supporting factors. 

Public expenditure is also expected to be lower than previously expected. 

The financial system, however, remains sound despite increasing vulnerabilities given the economic outlook and risks to the financial positions of businesses and households. 

Meanwhile, headline inflation will be less negative in line with increasing energy prices and will stay close to the lower bound of the target range in 2021. Medium-term inflation expectations remained anchored within the target.

Despite ample liquidity in the financial system and low financing costs, some businesses, especially SMEs, and households in need of liquidity have not gained access to credit. 

The baht appreciated rapidly against the US dollar owing to risk-on sentiment following the US presidential election outcome and progress of Covid-19 vaccine development. 

The committee expressed concerns over the rapid appreciation of the baht as this affected the fragile economic recovery. Hence, it said, it will closely monitor developments in foreign exchange markets and capital flows as well as consider the necessity of implementing additional measures.

The committee said policy coordination among government agencies will be critical to support the economic recovery going forward. Monetary policy must remain accommodative. Financial and credit measures should expedite liquidity distribution to 

affected groups in a targeted and timely manner, and financial institutions should accelerate debt-restructuring to have a broader impact. Fiscal measures continued to play an important role in shoring up the economy. The government should thus accelerate budget disbursement and assist vulnerable target groups. In addition, implementation of supply-side policies should be accelerated to support business restructuring and upskilling of workers, which will help support sustainable economic recovery in the long term.

Under the monetary policy framework with objectives of maintaining price stability, supporting sustainable and full-potential economic growth and preserving financial stability, 

the committee continued to put emphasis on supporting economic recovery. 

The committee will monitor the adequacy of the government measures and various risks, including domestic political uncertainties, progress of protocols for admitting foreign tourists, and financial position of businesses and households, in deliberating monetary policy going forward. The committee said it will stand ready to use additional appropriate monetary policy tools if necessary.

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Gold price falls

EconNov 18. 2020

By The Nation

The price of gold dropped by Bt100 per baht weight in morning trade on Wednesday after falling by Bt50 at close on Tuesday, the Gold Traders Association reported.

As of 9.26am, the buying price of a gold bar was Bt26,800 per baht weight and selling price Bt26,900, while gold ornaments cost Bt26,317.76 and Bt27,400, respectively.

At close on Tuesday, the buying price of a gold bar was Bt26,900 per baht weight and selling price Bt27,000 while gold ornaments cost Bt26,408.72 and Bt27,500, respectively.

The spot gold price moved to US$1,880 (Bt56,794) per ounce in the morning, while the Comex (Commodity Exchange) gold price to be delivered in December dropped by $2.70 to $1,885.10 per ounce on Tuesday due to mass sell-offs of the precious metal after its price had risen for three consecutive days.

The Hong Kong gold price meanwhile dropped by HK$60 to $17,400 (Bt67,814) per tael, the Chinese Gold and Silver Exchange Society reported.

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Worries over political unrest, rising global Covid-19 cases cast shadow on SET

EconNov 18. 2020

By The Nation

The Stock Exchange of Thailand (SET) Index rose by 1.03 points, or 0.08 per cent, to 1,350.84 in the morning session on Wednesday.

An analyst at Krungsri Securities expected the day’s index to fall to 1,340 points due to lack of positive sentiment.

“Uncertainty over political unrest in Thailand, rising Covid-19 cases worldwide and signs of overbought stocks would pressure the index,” he said.

He recommended investors buy:

> Mint, Centel, AOT, IVL, PTTGC and Top, which would benefit from positive news of a Covid-19 vaccine.

> Sawad, which made a joint investment with Government Savings Bank to operate the auto title loan business.

> Amata, WHA, SAT, AH and RCL, which would benefit from the Asia-Pacific Regional Comprehensive Economic Partnership pact.

The SET Index closed at 1,349.81 on Tuesday, down 1.25 points, or 0.09 per cent. The volume of total transactions was Bt90 billion, with an index high of 1,365.91 points and a low of 1,344.55.

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Fed’s Powell says solid expansion likely with virus surge posing risks

EconNov 18. 2020

By Syndication Washington Post, Bloomberg · Craig Torres · BUSINESS

Federal Reserve Chair Jerome Powell said the U.S. economic recovery is likely to continue at a “solid” pace yet risks losing momentum as the virus surges, adding that it was too soon to close the Fed’s emergency lending facilities.

Powell called rising virus infection rates a “significant” downside risk “especially in the near term,” during an online event Tuesday. “The concern is that people will lose confidence in efforts to control the pandemic and they will pull back from activities that they think might put them at risk of infection, and there are some signs of that already.”

While U.S. payrolls have recovered for six consecutive months, a resurgence in infections threatens to curtail activity and slow the recovery with millions of Americans remaining out of work. Still, stocks hit record highs this week on the promise of vaccines against the coronavirus.

Powell said recent progress on finding a vaccine was good news in the medium term, but the U.S. economy still has a “long way to go” before it fully recovers from the pandemic.

“The Fed will stay here and be strongly committed to using all our tools” to support the economy, Powell said. “The next few months may be very challenging.”

Fed officials have cut the benchmark lending rate to nearly zero and are currently buying $120 billion of Treasury and agency mortgage-backed securities a month to keep longer-run borrowing costs low. They have also pledged to keep providing policy support to the economy until inflation measures achieve rates that are consistent with an average of 2% over time.

The Fed chief also leaned toward keeping the Fed’s emergency lending facilities in place for now — all but one of which are currently scheduled to expire at the end of the year.

“When the right time comes, and I don’t think that time is yet or very soon, we will put those tools away,” he said. “The recovery is incomplete.”

Sen. Patrick Toomey, R-Penn., is urging the Fed to close the facilities as markets continue to function. The Fed would need the treasury secretary’s agreement to keep the facilities open. Treasury Secretary Steven Mnuchin has not made a decision about whether the facilities should be extended into next year, an agency spokesperson said.

In a sign that Americans may be turning more cautious, retail sales rose in October at the slowest pace in six months, Commerce Department data released earlier Tuesday showed. Weaker momentum in consumer spending — which accounts for two-thirds of the economy — means growth could slow following the third quarter’s record jump in gross domestic product.

With hopes for additional fiscal stimulus this year fading, Fed officials may debate providing additional stimulus next month to sustain the expansion. U.S. central bankers next meet Dec. 15-16.

Fed Vice Chair Richard Clarida said Monday that he was encouraged by the vaccine news and had “more conviction that the recovery from the pandemic shock in the U.S. can potentially be much more rapid than it was from the global financial crisis.”

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Oil from Russia to U.S. Gets snapped up in Asia buying binge

EconNov 18. 2020Oil pumping jacks stand in an oil field in Almetyevsk, Russia, on Oct. 19, 2020. MUST CREDIT: Bloomberg photo by Andrey Rudakov. 

By Syndication Washington Post, Bloomberg · Serene Cheong, Sharon Cho · BUSINESS, US-GLOBAL-MARKETS

Physical cargoes of crude oil from Russia, the U.S. and the Middle East were getting snapped up at higher prices as buyers across Asia entered a bidding war to secure supplies.

January shipments of Russian ESPO, a favorite among Chinese and Japanese refiners, were sold at a five-month high premium over Dubai prices after spot differentials for Sokol rose $1 a barrel. In the Middle East, Chinese buyers were seen buying grades such as Das at a premium to its official price, even though the light-sour variety is typically not popular among the nation’s processors.

Buying interest across Asia has been strong after some refiners obtained less oil than usual in term supply contracts from OPEC producers such as Saudi Aramco and Iraq’s SOMO. Chinese demand also grew after private refiners received crude-import quotas that were 20% larger than last year’s concession.

Traders also said Chinese importers were on a buying spree for grades from other producers including Brazil and Angola, paying for cargoes that would arrive before mid-February’s Lunar New Year holidays. Barrels from the West African country have been selling more quickly in recent weeks, leading to December differentials strengthening by 40 to 60 cents a barrel compared with November.

More Chinese spot purchases are likely this week after a unit of Rongsheng released a tender to purchase crude for delivery to Zhoushan in February. Last month, the company surprised traders by purchasing millions of barrels of oil as it prepared to double its crude-processing capacity.

Other processors and trading houses in Japan and South Korea were also picking up cargoes from Qatar and even as far away as U.S., as Asia acted as a bulwark against faltering oil demand in Europe and the Americas.

Outside of North Asia, oil demand also strengthened in India, where refineries have been running at capacity since the first week of November. Petroleum consumption in the South Asian nation saw its first year-on-year increase last month, proving that the fuel guzzler was back on its feet despite rising coronavirus cases.

Refiners including Indian Oil have increased purchases of Nigerian crude this month for loading in December and January, according to traders of West African grades.

Even North Sea crudes, which have been lagging behind other markets, have shown flickers of a recovery. A 2-million-barrel carrying supertanker is now sailing toward Ningbo in China, having floated for a month off the off the U.K. coast. Mercuria Energy Group, one of the world’s top oil traders, was bidding for multiple North Sea grades on Monday in a pricing window run by S&P Global Platts. In recent months, the window has been dominated by sellers.

Caspian CPC Blend, which is rich in naphtha that’s used to make plastics, has also seen growing interest from Asian refineries. At least 7 million barrels for December loading have been sold to India, China and South Korea, compared with about 5 million for November, according to traders. Boosted by the strong Asian demand, CPC Blend was recently sold at about 75 cents a barrel less than Dated Brent, the highest price in five months.

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China’s yuan jumps to strongest since 2018 as optimism prevails

EconNov 18. 2020

By Syndication Washington Post, Bloomberg · Tian Chen · BUSINESS

China’s yuan climbed to the strongest level in more than two years, fueled by optimism on the country’s economic recovery and its interest-rate premium over the rest of the world.

The yuan jumped as much as 0.5% to 6.55 a dollar, surpassing the high it reached earlier this month when Joe Biden won the U.S. presidential election. The currency is set to climb for a fourth session, pushing a measure of its relative strength past a level that signals to some investors an asset is overbought.

Apart from friendlier ties between Washington and Beijing, the currency is also climbing on bets the nation’s rebound from the pandemic is well on track. The premium that Chinese government bonds offer over American debt is near the highest on record, which attracts foreign inflows and supports the yuan. A weak dollar provides yet another boost.

“China will likely lead in terms of the macro economic recovery around the world in the coming six months, so its yield advantage will remain intact and the currency will keep rallying,” said Stephen Chiu, a strategist at Bloomberg Intelligence.

The currency is on course to advance for a sixth month in November, the longest rally since 2014. The yuan has jumped 9.4% since late May, wiping out more than half of the decline since a range of disputes between China and the U.S. on issues from trade to intellectual property protection kicked off, sending the currency to the weakest in a decade.

The recent rally has opened a window for policymakers to reform the foreign-exchange market, with Beijing moving to relax capital curbs and loosen controls on the fixing last month.

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Stocks ease off record highs with virus in focus

EconNov 18. 2020

By Syndication Washington Post, Bloomberg · Claire Ballentine · BUSINESS

Stocks pulled back from record highs as investor focus turned to the surge in virus cases and new lockdown measures, overshadowing optimism that covid-19 vaccines will eventually end the pandemic.

Pharmacy chains were among the worst performers on the S&P 500 Index after Amazon.com Inc. unveiled a new push into prescription drugs. Tesla Inc. jumped on news the carmaker will join the benchmark U.S. gauge. Treasury yields dipped along with the dollar as Federal Reserve Chair Jerome Powell said the U.S. economy still has a “long way to go” before it fully recovers from the pandemic.

Investors are taking a pause after sending stocks to all-time highs Monday in the wake of news that Moderna Inc.’s vaccine was shown to be 94.5% effective in a clinical trial. Wide distribution of a shot is still months away, and cases are spreading quickly in the U.S. and Europe. Chancellor Angela Merkel warned that the situation in Germany remains “very serious,” while Ohio, Illinois and Pennsylvania announced new restrictions tied to the virus.

“Markets find themselves in a seemingly awkward moment as they attempt to weigh the near-term covid trends and the potential for a very tough few months for the economy against the optimism and progress around vaccine development,” said Yousef Abbasi, global market strategist at StoneX.

Elsewhere, Asian stocks were slightly higher. In Europe, travel and leisure companies led declines as more lockdown rules were announced. The pound rose on signs the U.K. and European Union are nearing a breakthrough on Brexit as early next week.

These are the main moves in markets:

Stocks

– The S&P 500 Index fell 0.5% as of 4 p.m. EST.

– The Stoxx Europe 600 Index declined 0.2%.

– The MSCI Asia Pacific Index climbed 0.2%.

– The MSCI Emerging Market Index fell 0.1%.

Currencies

– The Bloomberg Dollar Spot Index decreased 0.2%.

– The euro increased 0.1% to $1.1864.

– The British pound advanced 0.4% to $1.3251.

– The Japanese yen strengthened 0.4% to 104.2 per dollar.

Bonds

– The yield on 10-year Treasurys sank four basis points to 0.87%.

– Germany’s 10-year yield declined two basis points to -0.56%.

– Britain’s 10-year yield fell two basis points to 0.32%.

Commodities

– West Texas Intermediate crude rose 0.1% to $41.38 a barrel.

– Gold fell 0.4% to $1,881.34 an ounce.

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Thai auto production set to roar past annual target with 1.42m units

EconNov 18. 2020

By The Nation

The country is expected to produce 1.42 million cars this year, exceeding the target by 20,000 units, according to the Federation of Thai Industries’ Automotive Industry Club.

Production for domestic sales is also set to meet the target of 700,000 and climb as high as 720,000, said club vice president and spokesman Surapong Pisitpattanapong.

He attributed the high sales to Thailand’s success in curbing the Covid-19 pandemic, resulting in a speedy economic recovery.

Production for exports is also expected to meet the 700,000 target, as long as there is no severe second wave of the outbreak in Europe.

Total production in October was 149,360 units, down only 2.24 per cent year on year.

Production for domestic sales, which accounts for more than half of total production, rose 18.81 per cent year on year to 82,157. The figure reflects growth for two consecutive months.

Production for export in October dropped 19.65 per cent to 67,203 units.

The export value for finished vehicles, including auto parts, spare parts, and motorcycles and spare parts, was just over Bt65 billion, a drop of 6.7 per cent year on year. The export value from January-October was Bt520.555 billion, a fall of 28.87 per cent year on year.

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Baht appreciation expected to be shortlived

EconNov 18. 2020Deputy PM Supattanapong Punmeechaow 

By The Nation

The Thai currency will only strengthen for a short period as foreign investors are flocking to the markets, including Thailand, to seek profits at the end of the year, Deputy PM Supattanapong Punmeechaow said.

He added that the Bank of Thailand was closely monitoring the situation.

Meanwhile, the Federation of Thai Industries chairman Supant Mongkolsutree said the baht has risen 8.2 per cent since April this year to around Bt30.34 against the US dollar.

He added that the baht appreciated more than the Vietnamese dong, which means exports from Thailand are more expensive that those from its main competitor.

He said the baht has risen by 10 per cent if counting back from March this year, when it was Bt33 against the greenback.

Supant believes the most appropriate value for the baht should be Bt32 to the dollar.

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THBFIX-linked financial products no longer issued from July next year: BOT 

EconNov 18. 2020

By The Nation

From July 2021, all financial institutions will stop offering new loans and debt securities which reference the Thai Baht Interest Rate Fixing (THBFIX), the Bank of Thailand (BOT) announced on Tuesday. The move was spurred by the scheduled cessation on December 31, 2021, of the London Interbank Offered Rate (LIBOR), which is used to calculate the THBFIX. 

The BOT and a committee on banks’ preparedness for LIBOR cessation agreed that the move was necessary in order to limit the amount of THBFIX exposure, thereby reducing risks associated with the LIBOR transition. 

New financial products can switch to the new interest rate benchmark, the Thai Overnight Repurchase Rate (THOR) which the committee and BOT have developed as an alternative.

The BOT said after THBFIX is discontinued, it will publish a Fallback Rate (THBFIX) to be used for THBFIX legacy contracts until end-2024. It should become obsolete as THOR-referencing products should be widely available in the market by then.

Market participants can find additional details on the preparation for LIBOR cessation at https://www.bot.or.th.