by Ed Wijaranakula, NMS Investment Research
Related Ticker: iShares MSCI Thailand Capped ETF [NYSEARCA:THD]
The Thailand SET jumped 0.98% to close at 1,300.98 on Friday, after the Bank of Japan (BOJ) said following its two-day rate review that they will introduce quantitative and qualitative monetary easing (QQE) and apply a negative 0.1% interest on excess reserves (IOER) of financial institutions placed at the bank, effective February 16. The BOJ also said it left the buying program of government bonds and exchange traded funds (ETFs) unchanged.
Recent data shows that Japanese consumer spending is still weak, despite that the jobless rate in Japan stood only at 3.3% in January. Japanese household spending fell 4.4% year-on-year in December, missing economists' forecasts for a 2.4% decline, according to the Ministry of Internal Affairs & Communications of Japan on Friday. It was the fourth straight month of declines and the biggest drop since March 2015.
Japan's inflation was still near zero ahead of the BOJ's two-day rate review. Last Friday, BOJ Governor Haruhiko Kuroda said during an interview with Bloomberg in Davos that the BOJ was prepared to expand bond purchases if necessary to achieve its 2% inflation target. Kuroda's comment sent the THB/JPY exchange rate up 1.53% and the WTI crude oil price skyrocketing 8.04% that day on short-covering.
The U.S. economy doesn't fare much better, as the Commerce Department said on Friday that the advance estimate of gross domestic product for the fourth-quarter 2015 was 0.7%, missing economists' expectations of a 0.8% gain. For the full-year 2015, the economy grew 2.4%, unchanged from 2014. Separately, the Commerce Department said Thursday that durable goods orders tumbled 5.1% last month, after declining 0.5% in November. Economists polled by Reuters had forecast durable goods orders to fall just 0.6% in December.
As expected, the U.S. Federal Reserve did not raise interest rates on Wednesday, but gave no indication whether the FOMC would change its views on rate-hikes, despite the turmoil in the global financial markets. The Fed issued a statement saying that they were "closely monitoring global economic and financial developments". Also in the statement was, "Inflation is expected to remain low in the near term, in part because of the further decline in energy prices, but rise to 2% over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further,".
U.S. financial markets sold off immediately after the release of the Fed statement, as the Fed move was perceived as hawkish. Some analysts think the policy statement was dovish and in line in with their views. The probability of a rate hike at the next FOMC meeting on March 16, based on the 30-day prices of federal funds futures, traded on the Chicago Mercantile Exchange and commonly used to estimate the market's views on the likelihood of changes in U.S. monetary policy, is only 16%, according to data from the CME Group as of January 29.
For the week, WTI crude oil prices were on a roller coaster ride but managed to close up 4.62%, despite conflicting information that emerged from Russia, Iran, Saudi Arabia and OPEC. PTT Exploration and Production Plc (SET:PTTEP), a subsidiary of Thailand's largest state-controlled fully integrated gas and oil company PTT Plc (SET:PTT), reported on Friday that their full-year 2015 net loss was 31.6 billion baht, due largely to collapsing global oil prices. This compares to a net profit of 21.5 billion baht in 2014, according to the Bangkok Post.
On Tuesday, Kasikornbank Pcl (SET:KBANK) said the bank was interested in providing loan guarantees to both True Corporation (SETTRUE) and Jasmine International (SETJAS), according to the Nation. In December, True Corporation and Jasmine International won the bidding war for the two 4G 900 MHZ spectrum licenses and would pay 76.3 and 75.67 billion baht, respectively. Jasmine International said at the time they had lined up 75 billion baht from a consortium of banks, one of which might be Bangkok Bank (SETBBL).
It could be a race to the bottom though, as shares of True Corporation and Jasmine International are already traded near their 52-week lows. Investors have dumped shares in the mobile telecom sector on concerns that the companies may have overpaid for the licenses and that an escalation of a price war in the Thai mobile phone market could soon erupt. Advance Info Service (SET:ADVANC) said in a statement released after losing the auction in December that they withdrew from the auction because the price for a license had stretched beyond fair value.
According to a Bangkok Post report on Friday, the National Broadcasting and Telecommunications Commission (NBTC) is quietly drawing up plans to call for a new round of auctions for the 900 MHZ spectrum, if bid winner Jasmine International fails to secure the massive funding it needs.
Earlier in the week on Monday, the SET shrugged off the headline news that the Ministry of Public Health had quarantined 32 people, as it seeks to prevent the spread of Middle East Respiratory Syndrome (MERS) after a second case of the virus was detected on Friday. Minister of Tourism and Sports of Thailand Kobkarn Wattanavrangkul told Reuters that Thailand's tourism industry would not be affected by the latest MERS case.
For the week, the SET soared 2.6% to close at 1,300.98 on Friday. The USD/THB exchange rate was quoted at 35.687 baht per dollar on Friday, down 0.94% for the week, while the CNY/THB slid 0.79% to close at 5.4262 baht per yuan. The Thai 10-year bonds were yielding at 2.34% at the close on Friday, down 6.02% from the previous week. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 1.923% on Friday, narrowed to 0.417 percentage points. Foreign investors' net sells have been slowing down to 7.966 billion baht since the beginning of the year, according to the SET data.
Technically, the SET broke out of the descending wedge chart pattern and exited bear market territory, as the index closed above the 1,295.82 level. The move this week could be seen as end-of-month window dressing by institutional investors, after several weeks of consolidation. The SET is now testing the 50-day moving average (green-line) at 1,300.91, and the 38.2% Fibonacci retracement level at 1,301.53. It looks like the SET has gained quite a lot of momentum and is poised to move higher. The next resistance level is at 1,313.86, or the trendline resistance, and at 1326.41, or the 50% Fibonacci retracement level.
One may want to watch the Thai baht, as the USD/THB could be heading to retest the October 15 low at 35.11 baht per dollar, meaning the SET should be at the 1,430 level.