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27 Mar 2006

Financial Institutions

"The Baht and the SET rebounded."

คะแนนเฉลี่ย

"The Baht and the SET rebounded."

The Liquidity Situation Last Week

Over the past week, short-term money market rates inched up slightly. Demand for cash at the month-end and Japanese year-end account closings influenced liquidity to become a bit tighter, despite higher short-term funds. Commercial banks gradually increased short-term investments, instead of long-term tenors, ahead of the Thai authorities' April 10 interest rate policy meeting. The mode of the overnight interbank rate stayed within a range of 4.38-4.41%, rising slightly from the prior week's range of 4.35-4.40%. Likewise, the 1-day and 7-day repurchase rates had closing ranges of 4.34375-4.40625% and 4.4375-4.50%, respectively, lifting slightly from 4.34375-4.375% and 4.4375-4.46875% last week.


The Thai 5-year bond yield (TH5YY) ended at 5.35% on Friday, increasing from the 5.21% seen last week. Although political concerns might affect the trading value, yields on Thai government debt surged upward across the board (+11 to +22 basis points). This was due to speculation toward the Bank of Thailand's further rate hikes, especially after an increase in the Fed Funds rate to 4.75%, as expected. As for the U.S. bond market, the Treasury 10-year yield closed at 4.85% on Friday, edging up from the 4.67% seen last Friday. Treasury yields rose from Monday to Thursday. Earlier in the week, Treasury yields drifted upward sharply, after the Fed had raised its benchmark rate by 0.25% as expected, with no significant changes in their post-meeting statement. Hence, markets interpreted this to mean that the Fed will continue to raise its key rate further. In addtion, the increase in Treasury yields was influenced by an unexpected jump in the Conference Board of Consumer Confidence Index for March to its nearly 4-year high, and a rise in yields of European debt. Treasury yields were lifted on Wednesday and Thursday, owing to weak response to a government debt auction during the week, as well as renewed fears about inflation after an upward revision in the Q4/2005 Core PCE Inflation figure. However, Treasury yields fell slightly on Friday, due to technical buying in bonds, after the Core PCE Inflation for February came in as expected.

Over the past week, the Baht drifted in a stronger range from late in the previous week. Early in the week, although heightened political tension - including a demonstration in front of a major department store in the heart of Bangkok, and a suspected bomb on property belonging to the Democrat party - hurt the Baht sentiment, the Baht managed to appreciate, thanks to the rising Yen/USD and other regional currencies. However, the Baht pared gains on Wednesday, as the USD saw support from the Fed Funds rate increase, as well as the upbeat FOMC statement on the Tuesday meeting. Later in the week, the Baht rebounded to drift in a narrow range, boosted by technical factors and USD selling in the offshore market. On Friday, March 31, the Baht averaged THB38.803/USD, compared to THB39.100/USD.

During the week of April 3-7, 2006, liquidity might be higher after a bit of tightening last week, thanks to expected low transactions ahead of the Monetary Policy Committee's meeting on April 10. However, short-term rates are anticipated will remain steady near the same ranges, because commercial banks will be preparing cash for mid-week holiday withdrawals, as well as for reserve closings on Friday.

The Baht is expected to drift in a range of THB38.80-39.10/USD. The market is likely to keep a close watch on a result of the general election on April 2, as well as further political developments. In the meantime, much key US economic data is scheduled out during the week. This includes the ISM indices for the manufacturing and service sectors for March, together with payrolls.

Foreign Currency Movements

Last week, the Yen was in the doldrums against the USD. Early in the week, the Yen surged, due to heavy Yen bidding related to fund repatriation by Japanese investors ahead of the fiscal-year end on March 31, and also to market expectations toward possibility that the Fed might signal a pause in its monetary policy tightening during the Tuesday meeting. Apparently, the market showed little reaction to comments from the Chinese central bank governor, citing that they would let the domestic market play a bigger role in the nation's foreign exchange rate system following the Yuan's revaluation last July. However, the Yen retreated on Wednesday, after the Fed decided to raise its Fed Funds rate by a quarter percentage point to 4.75% on Tuesday, and sent a pretty clear signal that there could be additional rate hikes going forward to help contain inflationary pressure. Later in the week, the Yen gained ground, as the greenback was pressured by some profit taking following its recent gains. Meanwhile, the Yen was initially hurt by the worse-than-expected core CPI for February. But, the currency managed a rebound after that, amidst volatile trade due to last-minute buying and selling orders from Japanese companies ahead of fiscal year-end book closing on Friday. Also, other parts of the market awaited the release of many key US economic reports on Friday night (Thailand time). On Friday, March 31, the Yen averaged JPY117.49/USD, compared to JPY118.04/USD at the end of the previous week.

Over the past week, the Euro was directionless. Although the Euro strengthened early in the week, it edged lower on Wednesday, following the result of the FOMC meeting on Tuesday that buoyed the greenback sentiment. On Tuesday, the FOMC raised its policy interest rate, while showing concern about inflationary risks. The market interpreted these as a signal of further policy tightening, which would help retain the interest rate advantage of investments in USD-denominated assets against those in other currencies. However, the Euro managed to recover gradually, thanks to the appreciating British Pound, and also to talks where the US Arab Emirates could convert their foreign reserves more into Euros. In addition, the Euro saw further aids from rumors that the White House had released statements supporting the USD weakness (which was later denied by the US Treasury), as well as from comments by ECB President that added to expectations for a May rate hike in the Euro area. On Friday, March 31, the Euro averaged USD1.2129, compared to USD1.1971 at the end of the previous week.

The Stock Market

The Thai stock market

For the week of March 27-31, 2006, the SET index finished the week at 733.25 points, rising 0.33 percent over the 730.85 points in the previous week, and 2.73 percent over the end of last year. Additionally, the weekly trading value rose 29.14 percent over the previous week, to THB71,431.82 million, from THB55,312.35 million, while the average trading value had increased to THB14,286.36 million, from THB11,062.47 million. As for the MAI index, it closed at 165.43 points, rising 0.8 percent over the 164.11 points of the week before, and increasing 4.55 percent over the end of last year.

The Thai stock markets edged up slightly over the previous week. Foreign investors became net buyers at THB2.71 billion, while retail and institutional investors were net sellers at THB2.22 billion and THB490 million, respectively. Thai stock markets swung in a narrow band on Monday. Trading was light, as investors were waiting for the outcome of the Federal Open Market Committee's meeting, but the SET managed to close in positive territory with the buying of banking and energy stocks. However, the index fell on Tuesday and Wednesday with the selling of energy, banking, construction and communication stocks, as many investors turned their attentions to small-cap stocks due to rising concerns about political tensions. On Wednesday, the trading sentiment was weighed down by protestors moving to the Siam Paragon shopping complex. Furthermore, another protest by farmers held at the headquarters of Krungthai Bank and Bangkok Bank had pressure on both banks' shares. PTT shares dropped heavily after a consumer group planned to take legal steps to reverse the company's privatization. However, the SET index managed to gain on Thursday and Friday, with buy backs of banking, energy and property shares, but gains were minimal as investors were waiting to see the political situation in the coming week after the election.

As for trading prospects during the week of April 3-7, KResearch is of the view that the outcome of the election and the political situation after the election will be the major factor influencing index movements. Also, the Ministry of Commerce will report the Consumer Price Index for March on Monday. It is expected that the index will likely move in a narrow range due to political uncertainty. On the technical side, the SET index is expected to have support at 725 points, while its resistance is seen at 740 points.

US and Japanese Stock Markets

As for US stock markets, the NASDAQ rallied to hit a 5-year high. On Friday, the DJIA closed at 11,109.32 points, losing 1.51 percent from the 11,279.97 points at the end of the previous week, but rising 3.66 percent over the end of last year. Meanwhile, the NASDAQ closed at 2,339.79 points, rising 1.17 percent over the 2,312.82 points of the previous week, and 6.1 percent over the end of last year. U.S. stock markets finished lower on Monday and Tuesday. On Monday, the DJIA edged down slightly as investors were cautious ahead of the Federal Open Market Committee's meeting to find clues about the size and how much longer the Fed's tightening cycle might end. The U.S. stock markets dropped sharply on Tuesday after the Fed lifted interest rates by a quarter percentage point to 4.75 percent and reiterated that more interest rate increases may be needed, dimming the growth outlook for corporate profits. Stocks fell across the board, except energy shares that rose along with rising global oil prices. Nevertheless, markets rebounded on Wednesday with rising technology share prices on such firms as Google Inc. and Apple Computer Inc., pushing the NASDAQ to reach 2,337.78 points, the highest level in 5 years. The DJIA ended lower again on Thursday and Friday, due to rising concerns about inflation after the revision on the fourth-quarter Personal Consumption Expenditure Index, excluding food and energy, from 2.1 percent to 2.4 percent, while a drop in crude oil prices on Friday dragged down energy shares.

Japanese stock markets finished above 17,000 points for the first time in more than 5 and half years. On Friday, the Nikkei finished the week at 17,059.66 points, increasing 3.01 percent over the 16,560.87 points of the previous week, and 5.89 percent over the end of last year. The Japanese stock markets headed upward through the week. On Monday, the NIKKEI gained on the buying of stocks with strong earnings prospects before the start of Japan's new fiscal year in April, and technology stocks rising after a rebound of such shares on the NASDAQ. The profit-taking on shipping and high dividend stocks, after claims on dividends ended, weighed down the market on Tuesday, but the index still finished higher with continued buying of technology shares. Moreover, the appreciation of the U.S. Dollar against the Japanese Yen on Wednesday, after the Fed raised their benchmark rate by another 0.25 percent, supported the earnings prospects of exporter stocks. The NIKKEI ended above 17,000 points for the first time in more than five and a half years on Thursday, and extended its gains until Friday along with the buying of banking shares after Goldman Sachs raised its profit estimates on the eight largest banks. But these gains were limited by speculative selling on recent gainers, before the release of the Bank of Japan's Tankan quarterly survey next week.



Financial Institutions

Baht