Mr Poon Panichphiboon, money market strategist, Krungthai GLOBAL MARKETS, Krung Thai Bank, revealed that the atmosphere in the US financial markets is still in risk-on conditions, with the S&P 500 index rising +1.30% after market players concerns about the stability of the US banking system gradually eased. As a result, banking stocks continued to rise (Morgan Stanley +3.6%, BofA +3.0%). Still driven by the rise in technology stocks and growth style stocks (Alphabet +3.7%, Amazon +3.0%) as market players still expect The Fed may gradually cut interest rates in the second half of the year . After a 5.25% increase in interest rates, energy stocks (Exxon Mobil +4.5%, Chevron +3.1%) continued to gain support from rising crude oil prices.
In European stock markets, the STOXX600 index was up +1.33%, bolstered by a continued rally in banking stocks (UBS +12.1%, Santander +4.6%) after market players eased concerns about the stability of the euro area and system European banking. in addition, the rebound in crude oil prices. It has also helped boost energy stocks such as in the United States (BP +3.4%, TotalEnergies +2.5%).
In terms of the bond market Exposure to the financial market has led to US 10-year bond yields continuing to rise to 3.60%, which we consider Long-term bond yields have an opportunity to continue rising. If the outcome of the Fed meeting on Thursday shows that the Fed’s interest rate hikes are not over yet. Because the Fed primarily wants to successfully manage the problem of high inflation. However, the rise in US 10-year bond yields in this round may not be very far or may not be able to rise to test the resistance zone around 4.00%, which we have always maintained the same view as that. Rising bond yields will allow investors to accumulate and accumulate.
in the currency market The dollar continues to weaken against the base currency after market players return to accepting more risks And most players still expect the Fed continue to “lower” interest rates in the second half of the year (it hit 4.50% at the end of the year, according to the CME FedWatch Tool) in the market done The dollar index (DXY) fell to 103.2 points. We expect the dollar to move sideways until the market sees the outcome of Thursday’s Fed meeting and there is some potential for the dollar to strengthen. If the Fed indicates that it is prepared to continue raising interest rates more than expected by the market in the gold price side Exposure to the market The inclusion of the continued increase in the 10 year bond yield in the US States has led to market players reducing their gold holdings. making the price of gold (Gold contract, COMEX market, introduced in April) face continued selling pressure. Until falling to $1,946 per ounce.
For today, market players will wait to assess the Bank of England’s (BOE) monetary policy direction via the UK’s February CPI inflation report. The market estimates that UK CPI inflation will continue to slow. But at a peak of 9.8%, the BOE may decide to continue raising interest rates by +0.25% (as expected) or +0.50% according to previous meetings. (from the current level of 4.00%)
The important highlight that should be watched carefully is the outcome of the Fed’s Monetary Policy Committee (FOMC) meeting, which will be known around 1:00 AM Thai time. We think the FOMC may decide to go ahead and raise the policy rate by +0.25% to a range of 4.75-5.00% to reiterate its stance on resolving inflation. (Recent CPI inflation still above 6%) while the liquidity problem in the US banking system. This led to the financial condition of the United States becoming tighter. Therefore, the need to accelerate the interest rate by +0.50% is reduced, however, we believe that the key factor to keep an eye on is the Fed’s new economic projections. Including the new interest rate trend forecast (Dot Plot). The Fed may not move its economic projections much. But there is a possibility that most Fed officials may see that The Fed should raise policy rates to 5.50% this year, up from the 5.25% predicted at its meeting in December. This is due to inflation, particularly core inflation in the services sector. tends to slowly slow down Regarding the liquidity problem of the US banking system. He is not very concerned. Because the US authorities and the Fed have already announced countermeasures.
Regarding the trend of the baht, it can be seen that the baht is depreciating more than expected. Even if the dollar weakens. The important factor is the flow of buying gold transactions in the timing of the correction. After the price of gold continues to fall. In addition, the baht was pressured as foreign investors continued to sell Thai stocks. (Sales pressure has slowed since the previous period)
Today, we think the baht may swing sideways before the Fed meeting, but the baht will weaken easily to test the resistance zone around 34.50 baht/dollar. If the price of gold continues to fall Who has to keep an eye on the movement of gold prices, we see that the gold price zone is 1,930-1,940 dollars per ounce. It may be a helpline that market players are waiting to gradually buy gold in downward momentum, However, the baht still has some support from the strong side. (The level of support is in the zone of 34.30 baht per dollar) net of Thai assets Especially some stocks But probably can not expect much buying pressure. Because foreign investors may wait to keep an eye on the results of the Fed meeting first.
However, one should be careful of volatility in the financial markets. During the period when the market players gradually realized the outcome of the Fed meeting, we saw that there was a chance that the dollar could turn around to appreciate. Along with the drop in the price of gold If the Fed indicates that it is ready to continue raising interest rates Until it reaches a level of no less than 5.50%, which is higher than expected by the market And it’s r Fed reaffirms its position not to rush to cut the policy rate. Until the problem of high inflation can be managed successfully. In this case, the baht has the opportunity to fluctuate and weaken to test the resistance zone of 34.70-34.80 baht per dollar.
But if the results of the Fed meeting reflect that The Fed has become increasingly concerned about problems in the banking system from previous meetings. Cause the Fed not to send a clear signal and it is ready to continue raising interest rates And the policy interest rate forecast or Dot Plot has not changed much from the original. (Or there may be a slight reduction in the interest rate forecast for 2024-2025). Even if the Fed raises interest rates as expected. But the Fed’s attitude has changed. There will be pressure on the dollar to weaken And the price of gold has a chance to rebound somewhat. do in this case The baht may strengthen to test the support zone around 34.30 baht per dollar.
And if the Fed does not raise interest rates as expected or surprises the market with a “lower interest rate”, we expect the baht to appreciate near the 34 baht / dollar zone. If the price of gold turns around and rises near the zone of 1,980-2,000 dollars per ounce again, but that remains to be seen The market will interpret that The Fed’s interest rate cut is a sign that the economy is in trouble. If the market sees a reduction in interest This may reflect an issue of concern We expect the market to return to risk mitigation. This will reduce the appreciation of the baht to some extent.
During this period, we believe that the volatility of the financial market is still high. (The baht fluctuates at a level of 9%-10% per year, which is significantly higher than the average of the last 10 years at 5%). Entrepreneurs should use a variety of financial tools such as options to increase efficiency in hedging against exchange rate risks. Check out the baht frame today. It is expected to be at the level of 34.35-34.55 baht / dollar.
