QE3 boosts SET, baht and gold

 

 

 

 

The Stock Exchange of Thailand this week is expected to post a drop from the past week, as good news related to the third round of quantitative easing (QE3) has been discounted. The index's main resistance line is 1,280 points, while it should not fall below 1,250-1,245 points.

Under the QE3, the US interest rate will be maintained at the low level until mid-2015. The Federal Reserve will also US$40 billion of buy mortgage-backed securities per month, to spur housing demand. The measure is expected to further buoy the economy like what QE2 did, but the sentiment would be subdued later on due to concerns on fiscal deficits ahead of the November presidential election. The US economic outlook should be clearer after January 2013. 

Dow Jones had risen for some time on expectation of QE3. It should weaken now and this would weaken the sentiment in the Thai market as well. 

The SET index could head up if domestic play stocks show good third-quarter results and energy stocks recover. Meanwhile, it also depends on the Monetary Policy Committee's action on the policy rate at the October meeting. Other factors are capital inflows, flood condition, and commodities prices.

 

Kasikorn Research Centre

The Stock Exchange of Thailand Index closed the week at 1,276.12 points, up 2.41 per cent from the previous week, bouyed mainly by the Federal Reserve Board's third round of quantitative easing (QE3) and Germany's Consitution Court's verdict on the European Stability Mechanism. As the index climbed to another new 16-year high, average daily turnover also shot up 34.7 per cent from the previous week to Bt37.4 billion. 

This week, we and Kasikorn Securities are convinced that there remains an upside gain, thanks to the QE3. Meanwhile, global factors and the euro-zone crisis still pose risks. 

For this week, the support levels are believed to be 1,270 points and 1,234 points while the resistance lines are at 1,285 points and 1305 points.

In the previous week, the Thai baht strengthened to the 4-month high, passing through the 30.80 per dollar level. It ended the week at 30.74 per dollar, against 31.20 in the previous week. This week, the baht could move in the range of 30.65-30.90 per dollar. Three factors will influence the movement - further expectation of good news from the Fed action, the euro-zone crisis and the initial manu

initial manufacturing indices of several Asian and European countries. 

 

Tisco Economic Strategy Unit 

The Fed eased further by embarking the so-called “QE3” and expected the policy rate at lower bound for at least through mid-2015 

With QE3, the Fed will purchase additional agency mortgage-backed securities at a pace of $40bn per month, on top of $45bn purchasing of long-term treasury under the Maturity Extension Program (the so-called Operation Twist), which was confirmed to stay put through year end. The purchases under the QE3 program will begin tomorrow and are expected to be $23bn over the remainder of September. The Fed will continue its purchases as well as undertake additional asset purchases and employ its other policy tools until the labor market improves substantially.

With an aggressive QE3, rising commodity prices, including oil prices, are widely expected, resulting in rising inflationary pressure ahead. The open-ended effort to spark US economic recovery could also mitigate the impact of the fiscal cliff. We, therefore, maintain our view that policy rate hikes in TH are likely to take place in 2013. 

 For this short-term, negative headlines out of Europe, especially Spain’s bailout issue, could limit market upside, though.

 Nevertheless, markets might not fight the central banks as the ECB telling that the Europe’s falling apart is not going to happen. 

the US central bank launching QE3. Looking at previous stimulus initiatives, one should expect the central banks’ moves will encourage investors to push money into riskier assets including equities and commodities. Therefore, there should be certainly further room for upside. 

Medium-term, fundamentals need to improve for markets to sustain a rally as central bank actions will result in less attractive valuations. 

And currently, a consensus on slow but positive global economic growth seems not yet to be reached by markets anytime soon. 

Of note, the Fed said the unemployment rate will remain above 8% this year, currently at 8.1%. Though, it upped the GDP for 2013 and 2014. 

And the more aggressive bond purchasing program could result in higher inflation that would complicate matters. 

Of note, 6 months after QE1 was announced, Brent prices had climbed 20%, while 6 months after QE2, they were up 38%.

 

Austin Kiddle

Sharps Pixley

The US gold Comex futures jumped 1.81 percent last week after surging 3.13 percent in the previous week and briefly exceeded the level of $1,770 on Thursday. Year-to-date, the gold futures rose 12.94 percent, compared to S&P 500 index, 17.94 percent and the Euro Stoxx 50 index, 14.72 percent. This week the S&P 500 index rose 0.77 percent while the Euro Stoxx 50 index rose slightly by 0.59 percent. The Dollar Index fell 1.23 percent to 79.262 after falling 1.18 percent last week. 

The market expectations of another quantitative easing programme from the Fed have pushed down the Dollar Index which peaked at 84 on 24 July. The German's court decision to ratify the European Stability Mechanism of Euro 500 billion also boosted gold prices. The pledge by the Chinese government to raise subway and railway projects spending by RMB 800 billion last week and Premier Wen's confidence in achieving 2012's growth target benefit both risky and gold markets.

On 13 September, the U.S. Fed did not disappoint the market by launching the widely-anticipated QE3 and linking the results of the QE3 to improvement of the labour market. The Fed will make an open-ended purchase of $40 billion of mortgage-backed securities each month until the Fed sees an ongoing and sustained improvement in the job market. In August, the U.S. economy only added 96,000 jobs. The Fed also pledged to hold interest rates at zero percent until at least mid-2015. Gold futures surged 2.22 percent while the CRB Commodities Index reached a five-month high as markets anticipate rising inflation after QE3.

According to Bloomberg, analysts forecast median gold price at $1,750 in 2013. The range goes from $1,560 to $2,050 for 2013. A Citibank analyst compared the gold price breakout in the week of 3 September, 2007 to that of the week of 27 August, 2012 and predicted gold price could reach $2,450 to $2,500 by Q1 2013. The Indian gold bar price per 10 grams surged to an all-time high at Rupee 32,700 on Wednesday on the back of the bullish external markets. 

The market will likely focus on the Eurogroup meeting and Spanish aids discussions on 14 and 15 of September, the U.S. August housing starts on 19 September, the China's September HSBC flash PMI and the EU 17 September flash manufacturing index as well as the U.S. initial jobless claims on 20 September.

QE3 boosts SET, baht and gold

 

Kasikorn Research Centre

The Stock Exchange of Thailand Index closed the week at 1,276.12 points, up 2.41 per cent from the previous week, bouyed mainly by the Federal Reserve Board's third round of quantitative easing (QE3) and Germany's Consitution Court's verdict on the European Stability Mechanism. As the index climbed to another new 16-year high, average daily turnover also shot up 34.7 per cent from the previous week to Bt37.4 billion. 

This week, we and Kasikorn Securities are convinced that there remains an upside gain, thanks to the QE3. Meanwhile, global factors and the euro-zone crisis still pose risks. 

For this week, the support levels are believed to be 1,270 points and 1,234 points while the resistance lines are at 1,285 points and 1305 points.

In the previous week, the Thai baht strengthened to the 4-month high, passing through the 30.80 per dollar level. It ended the week at 30.74 per dollar, against 31.20 in the previous week. This week, the baht could move in the range of 30.65-30.90 per dollar. Three factors will influence the movement - further expectation of good news from the Fed action, the euro-zone crisis and the initial manu

initial manufacturing indices of several Asian and European countries. 

 

Tisco Economic Strategy Unit 

The Fed eased further by embarking the so-called “QE3” and expected the policy rate at lower bound for at least through mid-2015 

With QE3, the Fed will purchase additional agency mortgage-backed securities at a pace of $40bn per month, on top of $45bn purchasing of long-term treasury under the Maturity Extension Program (the so-called Operation Twist), which was confirmed to stay put through year end. The purchases under the QE3 program will begin tomorrow and are expected to be $23bn over the remainder of September. The Fed will continue its purchases as well as undertake additional asset purchases and employ its other policy tools until the labor market improves substantially.

With an aggressive QE3, rising commodity prices, including oil prices, are widely expected, resulting in rising inflationary pressure ahead. The open-ended effort to spark US economic recovery could also mitigate the impact of the fiscal cliff. We, therefore, maintain our view that policy rate hikes in TH are likely to take place in 2013. 

 For this short-term, negative headlines out of Europe, especially Spain’s bailout issue, could limit market upside, though.

 Nevertheless, markets might not fight the central banks as the ECB telling that the Europe’s falling apart is not going to happen. 

the US central bank launching QE3. Looking at previous stimulus initiatives, one should expect the central banks’ moves will encourage investors to push money into riskier assets including equities and commodities. Therefore, there should be certainly further room for upside. 

Medium-term, fundamentals need to improve for markets to sustain a rally as central bank actions will result in less attractive valuations. 

And currently, a consensus on slow but positive global economic growth seems not yet to be reached by markets anytime soon. 

Of note, the Fed said the unemployment rate will remain above 8% this year, currently at 8.1%. Though, it upped the GDP for 2013 and 2014. 

And the more aggressive bond purchasing program could result in higher inflation that would complicate matters. 

Of note, 6 months after QE1 was announced, Brent prices had climbed 20%, while 6 months after QE2, they were up 38%.

 

Austin Kiddle

Sharps Pixley

The US gold Comex futures jumped 1.81 percent last week after surging 3.13 percent in the previous week and briefly exceeded the level of $1,770 on Thursday. Year-to-date, the gold futures rose 12.94 percent, compared to S&P 500 index, 17.94 percent and the Euro Stoxx 50 index, 14.72 percent. This week the S&P 500 index rose 0.77 percent while the Euro Stoxx 50 index rose slightly by 0.59 percent. The Dollar Index fell 1.23 percent to 79.262 after falling 1.18 percent last week. 

The market expectations of another quantitative easing programme from the Fed have pushed down the Dollar Index which peaked at 84 on 24 July. The German's court decision to ratify the European Stability Mechanism of Euro 500 billion also boosted gold prices. The pledge by the Chinese government to raise subway and railway projects spending by RMB 800 billion last week and Premier Wen's confidence in achieving 2012's growth target benefit both risky and gold markets.

On 13 September, the U.S. Fed did not disappoint the market by launching the widely-anticipated QE3 and linking the results of the QE3 to improvement of the labour market. The Fed will make an open-ended purchase of $40 billion of mortgage-backed securities each month until the Fed sees an ongoing and sustained improvement in the job market. In August, the U.S. economy only added 96,000 jobs. The Fed also pledged to hold interest rates at zero percent until at least mid-2015. Gold futures surged 2.22 percent while the CRB Commodities Index reached a five-month high as markets anticipate rising inflation after QE3.

According to Bloomberg, analysts forecast median gold price at $1,750 in 2013. The range goes from $1,560 to $2,050 for 2013. A Citibank analyst compared the gold price breakout in the week of 3 September, 2007 to that of the week of 27 August, 2012 and predicted gold price could reach $2,450 to $2,500 by Q1 2013. The Indian gold bar price per 10 grams surged to an all-time high at Rupee 32,700 on Wednesday on the back of the bullish external markets. 

The market will likely focus on the Eurogroup meeting and Spanish aids discussions on 14 and 15 of September, the U.S. August housing starts on 19 September, the China's September HSBC flash PMI and the EU 17 September flash manufacturing index as well as the U.S. initial jobless claims on 20 September.