Thailand’s lower Consumer Price Index (CPI) weakens Baht further despite recent gain in bonds
Thailand’s inflation remained in a lower range in June, growing 2.25% YoY from the previous 2.27% in May. Lowering inflation plays one of the key benchmarks among the different types of assets in Thailand, adding confusion for investors if they use similar models compared to investing in other ASEAN countries.Source: Bloomberg, FXPRIMUS Click the image to enlarge
The Stock Exchange of Thailand (SET) index followed the Morgan Stanley Capital International (MSCI) Asia ex-Japan index closely since the middle of March. This means domestic economic releases may continue contributing the LEAST impact to equities pricing, due to the “Federal Reserve’s (Fed) Quantitative Easing (QE) Tapering” dominating the entire Asian sentiment, and besides the Chinese banking sector’s liquidity conditions.Source: Bloomberg, FXPRIMUS Click the image to enlarge
Worries should continue until the end of the year unless fundamentals change in the U.S. or Euro Zone. However, I think the chance for those changes to appear aggressively could be relatively low. Portugal’s recent 10-year yield’s surge failed, bringing turmoil in the currency bloc again, and the latest rebound of Automatic Data Processing (ADP) payroll data suggests that recovery in the U.S. market continues on track. Having said that, the word “adjustment” which Ben Bernanke used in June’s Federal Open Market Committee (FOMC) meeting could be read more as “tapering” instead of adding stimulus. Hence, the Baht has barriers to edge higher against the Greenback.
Sovereign bonds in Thailand, with the upside inflation risk eased according to the latest few readings, outperformed other sovereign bonds, such as in Indonesia and the Philippines, as subdued inflation still allows local officials to act further if needed.Source: Bloomberg Click the image to enlarge
Yesterday, the consumer confidence index in Thailand fell to 81.6 in June from 82.5 in May, as the Finance Minister lowered the growth target in 2013 on concern for a possible delay in infrastructure projects.Source: Bloomberg Click the image to enlarge
Is Gold’s honeymoon over? Looking at the Aussie
Besides the Dollar Index having a close negative correlation with the U.S. Dollar, I also noticed that Gold had an extremely strong correlation with the Aussie Dollar in the past six months. Hence, the expected “Aussie bear” might suggest a continuous downward momentum for the Gold price.Source: Bloomberg, FXPRIMUS Click the image to enlarge
As one of the major gold mining countries, Australia’s producers suffered tremendously on the price of Gold dropping. According to the total 200 gold miners under the Australian Securities Exchange (ASE), average return was down 45% since the beginning of the year, while the AXS 200 still managed to edge 1.5% higher. Mining sectors suffering on the lower material pricing always provided more room for the Reserve Bank of Australia (RBA) to further ease monetary policy. If Gold and the Aussie move in tandem with the theory applied, I continue seeing further downside risk for Gold.Source: Bloomberg, FXPRIMUS Click the image to enlarge
Another factor not to be ignored, largely impacting the commodities price as well as the Aussie, is China’s growth. One of the biggest credit squeezes in June could put the country at risk to miss the government’s annual target at 7.5%. Government targets usually serve as the “bottom line.”
Despite the People’s Bank of China’s (PBOC) statement, further bailout will be available but conditions will apply. The new government’s determination to reform looks strong at the moment and aims to build a strong reputation and credibility. Hence, I continue seeing more downside risk for the Aussie due to its high correlation with the Chinese economy.
Previous Daily Market Report: ASEAN Market Review for 21 June 2013: Special Edition – Thailand’s Economic Outlook