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24 Apr 2006

Financial Institutions

"The Baht continued its bullishness, despite the falling SET."

คะแนนเฉลี่ย

"The Baht continued its bullishness, despite the falling SET."

The Liquidity Situation Last Week

Over the past week, short-term money market rates were rather stable, or increased slightly. This was because commercial banks had to prepare cash for customer month-end and long-weekend withdrawals. Meanwhile, there was a redemption of the Financial Institution Development Fund bonds amounting to THB20 billion on Wednesday. The overnight interbank rate moved within a range of 4.62-4.75%, with its mode staying at 4.63% for almost the whole week, before inching upward to 4.67% on Friday. The 1-day and 7-day repurchase rates closed higher a bit from 4.625% and 4.6875%, respectively, earlier in the week to 4.65625% and 4.71875% on Wednesday and Thursday, before returning on Friday to end the week at the same level seen earlier.

The Thai 5-year bond yield (TH5YY) ended at 5.35% on Friday, declining from the 5.53% seen last Friday. Yields on Thai government debt fell sharply across the board, especially later in the week. Market sentiment was supported by many reasons, such as speculation that the official rate hikes would be nearing an end, plus a downward trend in long-term government debt issuances, and movements in Treasury yields and the Bank of Thailand's bond purchases later in the week. As for the U.S. bond market, the Treasury 10-year yield closed at 5.06% on Friday, inching higher from the 5.01% seen last Friday. Treasury yields dropped on Monday, due to worries about high energy prices that might threaten consumer spending and the U.S. economy. Nevertheless, Treasury yields edged up sharply on Tuesday and Wednesday. The 10-year Treasury yield hit its highest level for 4 years of 5.13% during the trading session on Wednesday. This was due to stronger than expected economic figures, such as the April's Conference Board of Consumer Confidence Index, existing and new home sales for March, plus the March's durable goods orders. In addition, investors gave a poor reception to bond auctions during the week, thus helping Treasury yields to increase. However, Treasury yields slid over the last two days of the week, because investors were adjusting to congressional testimony on Thursday from Fed Chairman Ben Bernanke suggesting that the Fed is close to a pause in its rate tightening cycle.

Over the past week, the Baht continued to enjoy its bullish momentum. Early in the week, the Baht appreciated, following the rising Yen/USD and other regional currencies that saw support from G-7's statements pressuring China to revalue its currency. In addition, the USD was pressured by trade deficit wariness, as well as concerns that the Fed might end its tightening campaign sooner than anticipated. In the middle of the week, the Baht eased, due to USD bidding from local importers and in offshore markets, along with intervention alerts from the BOT and other Asian central banks that limited gains in regional currencies. Meanwhile, the market awaited a clearer resolution to the political crisis at home, after His Majesty the King's speech on Tuesday. Later in the week, the Baht resumed its strength, hitting THB37.45/USD on Friday, which was a new 6-year high. The Baht was not much affected by BOT's statements admitting that it had intervened into foreign exchange markets, as the market had already absorbed such a possibility. On the greenback's front, it slid on bearish signals from Fed Chairman, increasing the possibility that the Fed will likely finish with its interest rate hikes soon. On Friday, April 28, the Baht averaged THB37.495/USD, compared to THB37.840/USD at the end of the previous week.

During the week of May 1-5, 2006, commercial banks might still be collecting funds to meet their fortnightly reserve closings, as well as for customer long-weekend demand for money. Meanwhile, there are only three workdays in this week. It is expected that short-term rates may remain steady near the same ranges.

As for the Baht, the markets will likely focus their attention on political developments at home, as well as upcoming US economic data scheduled out during the week. Some of this key data includes the core PCE index for March, and the ISM indices for the manufacturing and service sectors for April, as well as the April payrolls. However, trading is expected to be thin, as domestic markets will be closed on Monday and Friday, while Japanese markets will not operate on the last three days of the week, due to the Golden Week holidays. As a result, foreign exchange rates could be more volatile that they usually are.

Foreign Currency Movements

Last week, the Yen rallied against the greenback. Early in the week, the USD was adversely affected by weekend statements of the G-7 nations conference that China should let its Yuan appreciate to help solve the global imbalance. In addition, fears that central banks would shift their holdings away from the greenback accelerated, due to comments from the Qatar central bank. Although the greenback revived in the middle of the week, it slipped during the remainder of the week until hitting its lowest level in three months at JPY113.81/USD during Thursday's trading session in Europe. A major pressure for the greenback included opinions by Fed Chairman Ben Bernanke, sending the clearest signal that the Fed is close to finishing with its tightening campaign. This overclouded strong economic data from the US, such as the Conference Board's consumer confidence for April, March new and existing home sales, together with the durable goods orders for March. Contrarily, the Yen saw an additional boost from a robust inflation report that had picked up at its fastest pace in 8 years during March. On Friday, April 28, the Yen averaged JPY114.20/USD, compared to JPY117.60/USD on the previous Friday.

Over the past week, the Euro rose to its highest level in 7 months against the USD. During the week, the greenback was dampened by many negative factors. One of these was a concern that the greenback would look less appealing to central banks, especially after the Qatar central bank mentioned on Sunday that it has longed Euros and continued to accumulate them to reach 40% of their total foreign reserves. This followed a similar comment by the Swedish central bank, cited in the prior week. In addition, the USD saw further pressure from statements by G-7 leaders and the ECB President saying that China, as well as emerging countries, should help correct the global imbalance. Also, a heightened terrorist alert - due to a broadcast of threatening statements from Al Qaeda - and also mounting geopolitical tensions related to the Iranian nuclear program, as well as the Fed Chairman's strong signals toward a looming ending of policy tightening, helped send the greenback down and overshadowed robust US economic reports. On the other hand, in addition to upbeat comments from many high ECB officials supporting more rate hikes, the Euro sentiment was lifted by healthy economic data, including the German Ifo's Business Climate Index for April hitting its highest level in 15 years, the better-than-expected February industrial new orders for the Eurozone, and also the Italian Business Confidence Index that rose to a 5-year high in April. On Friday, April 28, the Euro averaged USD1.2552, after hitting its highest level in 7 months at USD1.2567 during the trading session. At the end of the previous week, the Euro averaged USD1.2297.

The Stock Market

The Thai stock market

For the week of April 24-28, 2006, the SET index finished the week at 768.29 points, falling 0.62 percent from the 773.06 points in the previous week, but rising 7.64 percent over the end of last year. Additionally, the weekly trading value rose 34.83 percent over the previous week, to THB101,000.93 million, from THB74,908.05 million, while the average trading value had increased to THB20,200.19 million, from THB18,727.01 million. As for the MAI index, it closed at 170.47 points, rising 0.44 percent over the 169.72 points of the week before, and increasing 7.74 percent over the end of last year.

Thai stock markets finished lower from the previous week. Foreign and institutional investors became net sellers at THB2.2 billion and THB204 million, respectively, while retail investors were net buyers at THB2.4 billion. On Monday, the SET index headed down, following the same movement of other regional stock markets, due to concerns that rising energy prices might dampen the outlook of corporate profits and the profit-taking on banking stocks after they finished reporting their quarterly performances. The selling of energy shares, after global oil prices decreased, caused the index to slide further on Tuesday, as well as the profit-taking on TPI's shares ahead of a ruling on whether the company could exit its rehabilitation programme on Wednesday. However, the Thai stock market managed to rebound on Wednesday with the buying of banking, construction and transportation stocks. Overall sentiment was supported by optimism about domestic political tension, following a speech by His Majesty the King that the country's courts should find a solution for the current situation. The index dropped again on Thursday and Friday due to continued selling of energy stocks, while the BOT downgraded its 2006 GDP forecast, raising concern about the prospects of listed companies's earnings.

As for trading prospects during the week of May 2-4, KResearch is of the view that investors will likely be paying attention to the high courts' reaction to the domestic political situation, movements of global oil prices and the release of the Ministry of Commerce's Consumer Price Index for April. On the technical side, the SET index is expected to have support at 760 points, while its resistance is seen at 775-778 points.

US and Japanese Stock Markets

US stock markets were on and off throughout the week. On Friday, the DJIA closed at 11,367.14 points, rising 0.17 percent over the 11,347.45 points at the end of the previous week, and rising 6.06 percent over the end of last year. Meanwhile, the NASDAQ closed at 2,322.57 points, falling 0.87 percent from the 2,342.86 points of the previous week, but rising 5.32 percent over the end of last year. The DJIA edged lower on Monday and Tuesday as falling oil prices weighed down large energy companies' shares prices such as Exxon Mobil Corp. and ConocoPhillips. In addition, pharmaceutical shares dropped after a court decision against Merck & Co. Inc. that its painkiller had caused the death of one of its users. The stronger-than-expected economic data on Tuesday such as consumer confidence index for April and existing home sales in March, supported the expectation that the Federal Reserve will keep raising interest rates and this led to the selling of interest rate-sensitive stocks such as those in banking and the financial sector. The DJIA managed to hit a six-year high on Wednesday, boosted by strong earnings reports from many listed companies, and after Merrill Lynch & Co. upgraded its investment rating on General Motors Corp. The U.S. stock markets extended their gains on Thursday with rising interest rate-sensitive companies' stocks such as banks and utilities, after Federal Reserve Chairman Ben Bernanke said that the Fed might end its interest rate rising cycle. On Friday, a disappointing profit forecast from Microsoft Corp. dragged down both the DJIA and the NASDAQ, and outweighed positive news that the U.S. economy had grown strongly at an annualized rate of 4.8 percent in the first quarter, the strongest growth rate in two and half years.

Japanese stock markets edged down from the previous week. On Friday, the Nikkei finished the week at 16,906.23 points, decreasing 2.86 percent from the 17,403.96 points of the previous week, but rising 4.93 percent over the end of last year. The NIKKEI dropped 489.56 points, or 2.81 percent, to end below the 17,000 point for the first time in nearly a month on Monday as the appreciation of the JPY to a three-month high against the U.S. Dollar raised fears about the profit outlook of exporter shares such as Honda Motors and Canon Inc. However, the index rose for 3 days in a row after that. On Tuesday, the NIKKEI increased slightly due to the buying of retailers and property stocks, while on Wednesday, the index gained from strong earnings forecasts of KDDI Corp. and Nikon Corp. On Thursday, Honda Motor Co.'s share prices surged to an all-time high and became a major factor to support the NIKKEI after the company posted a 133 percent jump in its fourth quarter profits, and announced a plan for a stock split. Nevertheless, the market fell heavily on Friday due to the lower-than-expected profit forecast from Sony Corp. and expectations that a stronger JPY could hurt the outlook of exporter's shares. Additionally, some investors were cautious ahead of the long holiday - Golden Week - in which the Japanese stock markets will be closed starting next Wednesday.

Financial Institutions

Baht