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15 May 2006

Financial Institutions

" The Baht drifted in a lower range, while the SET plunged."

คะแนนเฉลี่ย

" The Baht drifted in a lower range, while the SET plunged."

The Liquidity Situation Last Week

Over the past week, short-term money market rates barely moved. There were funds flowing back into the banking system after a long-weekend, while commercial banks were collecting cash approaching the reserve closings next Monday. The mode of the overnight interbank rate stayed in a range of 4.65-4.69%, unchanged from last week. The 1-day repurchase rate closed between 4.59375-4.65625%, compared to a stable closing rate of 4.625% in the previous week.

The Thai 5-year bond yield (TH5YY) ended at 5.39% on Friday, increasing from the 5.36% seen last Thursday. Yields on Thai government debt edged higher from early in the week, due to bond selling and a rise in Treasury yields. But, the increase in mid- and long-term yields during the rest of the week was capped by the Bank of Thailand's bond purchases on Tuesday and a good response to the government bond auctions on Wednesday. As for the U.S. bond market, the Treasury 10-year yield closed at 5.07% on Friday, falling from the 5.19% seen last Friday. Treasury yields dropped on Monday and Tuesday, due to easing concern about inflation due to falling commodity prices and a tame core PPI inflation for April. A larger than expected 7.4% decline in April housing starts also raised worries about U.S. consumer spending. However, Treasury yields picked up on Wednesday, after a more than expected increase in core CPI inflation for April. Nonetheless, Treasury yields began to retreat again on Thursday, as signs of slowing economic growth appeared, such as a jump in jobless claims for the week ending May 13, and a decrease in the employment component of the Philadelphia Fed Manufacturing Survey for May. This was offset remarks from Richmond Fed Governor that supported further rate hikes to curb inflationary pressure. On Friday, Treasury yields inched up slightly, as investors viewed that the Fed would keep inflation low by raising its benchmark rate further.

Over the past week, the Baht drifted in a lower range than in the previous week. On Monday and Tuesday, the Baht edged lower, due to concerns about political uncertainties at home, and the falling SET, as well as the easing Yen and regional currencies. However, in the middle of the week, the Baht rebounded, following USD weakness against its major rivals, despite USD bidding by local importers. The greenback was apparently hurt by weak US economic data, reinforcing the market's view that the Fed may soon finish with its policy tightening. On Thursday, the Baht fell again, after the USD received support from changing views about US interest rates. Then, on Friday, the Baht rebounded slightly, as the market perceived that capital outflows to buy stocks issued by a Thai company in the Singapore market had slowed. The Baht averaged THB38.090/USD during its afternoon trading session on Friday, compared to THB37.725/USD at the end of the previous Friday.

During the week of May 22-26, 2006, commercial banks may begin preparing cash in advance for customer month-end withdrawals, although it will be just the beginning of a new reserve requirement period. Short-term rates, therefore, are anticipated to remain steady near their same ranges.

The Baht is likely to continue its bearish sentiment on technical factors. The next key resistant level for the Baht is THB38.40-38.50/USD. Meanwhile, during the week, the US will release many key figures, including durable goods orders, new and existing home sales for April, and the GDP for Q1/06 (the second reading), as well as statements from Fed Chairman Ben Bernanke and the Treasury Secretary on Tuesday.

Foreign Currency Movements

Last week, the Yen fluctuated. On Monday and Tuesday, the Yen edged lower, while the greenback was buoyed by a fall in gold and commodity prices. The Yen was initially boosted on Monday by a report that China's central bank had set the currency's mid-point below CNY8.00/USD for the first time since it was freed from a decade-old Dollar peg in July 2005. The market took this as a signal that China might allow the Yuan to appreciate, though the currency did depreciate on the following day. Although the US reported net capital inflows for March that were below market expectations, the USD was not affected, as the net inflows were sufficient to cover the trade deficit of the same month. In the middle of the week, the Yen soared to its highest level in 8 months at JPY108.96/USD, after ECB Governing Council member Christian Boyer said that more currency flexibility was desirable in Asia, echoing a call made by G7 nations last month. In addition, the USD also saw additional negative factors from the weak core PPI and housing starts for April, boosting market views toward a possible pause in the Fed's two-year old tightening campaign. However, the Yen retreated later in the week, as the greenback rose on market confidence toward additional Fed rate hikes that was promoted by a higher-than-expected US CPI for April. This overclouded good news for the Yen, including the better-than-expected Japanese GDP that grew 0.5% in January-March over the previous quarter (compared to market expectations of 0.3%), as well as the fact that Treasury Secretary John Snows reiterated on Thursday his dissatisfaction regarding the pace of China's efforts to increase the flexibility of the Yuan. On Friday, May 19, the Yen averaged JPY111.46/USD, compared to JPY109.47/USD on the previous Friday.

Over the past week, the Euro was in the doldrums. Early in the week, the Euro retreated, due partly to the much-weaker-than-expected economic expectations indicator for May conducted by the German ZEW institute, while the greenback saw a temporary boost from falling gold and commodity prices. In the middle of the week, the Euro appreciated, before returning to its bearish sentiment later in the week. This Euro weakness was due to statements by high ECB officials - including French Finance Minister Thierry Breton and officials from the German economic ministry - expressing their concerns that the rising Euro could hurt economic momentum in the Eurozone. Meanwhile, the USD sentiment was supported by resumed investor confidence that the Fed might need to increase its key interest rate further on the back of the accelerating CPI for April. Also, many high Fed officials continued to waive their inflation wariness, while saying that such a risk remains and that the Fed will still keep a close watch on it. On Friday, May 19, the Euro averaged USD1.2790, compared to USD1.2923 at the end of the previous week.

The Stock Market

The Thai stock market

For the week of May 15-19, 2006, the SET index finished the week at 746.33 points, falling 4.62 percent from the 782.5 points in the previous week, but rising 4.57 percent over the end of last year. Additionally, the weekly trading value rose 11.59 percent over the previous week, to THB84,683.61 million, from THB75,885.05 million, while the average trading value had decreased to THB16,936.72 million, from THB18,971.26 million. As for the MAI index, it closed at 172.28 points, falling 3.51 percent from the 178.54 points of the week before, and increasing 8.8 percent over the end of last year.

The SET Index dropped to its lowest level in 6 weeks. Retail and institutional investors became net buyers at THB10.8 billion and THB3.3 billion, respectively, while foreign investors were net sellers at THB14.1 billion. On Monday, the Thai stock market tumbled 2.1 percent, following the sharp drops in regional stock markets, from the selling of banking and energy shares after global oil prices started to decline, as well as a lack of new positive factors to support trading. In addition, foreign selling, in order to prepare for subscriptions to initial public offering (IPO) shares of both Rayong Refinery Plc. (RRC) and Thai Beverage Plc. in Singapore and the Bank of China in Hong Kong, caused the market to fall sharply. The SET Index continued to drop slightly on Tuesday, but the losses were limited by the buy-back of large-cap stocks such as PTT, SCC and ADVANC. Nevertheless, the market managed to gain on Wednesday, amid thin trading, from the buying of banking and communication shares. On Thursday, the market finished lower again, with profit-taking on banking and communication stock as foreign investors were concerned about rising inflation and the possibility of more interest rate hikes in the U.S. Meanwhile, on Friday, The index closed at its lowest in 6 weeks, as it finished at 746.33 points, with the selling of banking and financial shares.

As for trading prospects during the week of May 15-19, KResearch is of the view that the index's movement will depend on the movements of global oil prices as well as the foreign capital flows. It is expected that the index will likely regain recent losses due to capital inflows to the stock market after RRC's subscription period finishes. On the technical side, the SET index is expected to have support at 740 points, while its resistance level is seen at 755 points.

US and Japanese Stock Markets

US stock markets

Japanese stock markets ended at an over 2 month low on Thursday. On Friday, the Nikkei finished the week at 16,155.45 points, decreasing 2.69 percent from the 16,862.14 points of the previous week, but rising 0.27 percent over the end of last year. The NIKKEI fell on Monday as investors sold large exporters' stocks such as Canon Inc., Toyota Motor Corp. and Honda Motor Co. due to concerns about the strong JPY. The Japanese stock market extended its losses for 6 consecutive days on Tuesday with falling mining and energy stock followed a drop in commodities and oil prices. On Wednesday, the index picked up with the buy-back of recent losers. Additionally, a recovery in gold and base metal prices supported the buying of mining stock. The NIKKEI dropped sharply by 220.49 points on Thursday to finish at 16,087.18 points -its lowest close in over 2 months- following the same direction as the U.S. stock markets due to concern about rising inflation and more interest rate increases from the Federal Reserve. However, Japanese stock markets gained on Friday after the release of stronger-than-expected Q1/06 GDP growth, and shipping stock rising after brokerage firms upgraded their investment ratings and target prices.

Financial Institutions

Baht