The Thailand SET bounced off an intra-week low at 1513.42 after the Bank of Thailand (BOT) announced a cut in the key benchmark interest rate, by 25 basis points to 1.50%. This cut was unexpected by many, as the BOT had just cut the rate by 25 basis points on March 11. The cut however, should not have been seen as a surprise as the bond market already telegraphed that more rate cuts were coming. The 10-Year Thailand Government Bond yield hit a 52-week low last week, which was a big red flag. 

The BOT is still concerned about weak Thai exports and consumer spending as Thailand's private consumption index (PCI) slipped 1.9% year-on-year in March, on the heels of a revised 2.8% decline in February. Earlier last week, the Commerce Ministry said that Thai exports are expected to grow only about 1% this year, and not the 4% previously forecasted. 

The USD/THD exchange rate surged 1.94% from last week to close at 33.209 baht per dollar on Friday. The big fluctuation in the exchange rate could be attributed in part to a 1.7% decline in the U.S. dollar index over the week. The Federal Reserve signaled on Wednesday, after the Federal Open Market Committee (FOMC) meeting, that it could raise interest rates at any meeting, despite the U.S. GDP barely growing in the first quarter this year. The currency market seemed to take what the Fed did, and not what they said, in stride as no rate hike was announced.

The 10-year Thailand Government bond yield tumbled 6.11% on Thursday to a fresh new 52-week low of 2.46%, down 4.28% for the week. The yield of the 10-year Thailand Government bond has declined 15.46% since the beginning of the year. The sinking bond yield could be a sign of a flight-to-safety bid, or speculation about more rate cuts by the BOT.

The capital inflows into the Thailand bond and the equities markets by foreign investors could be negatively impacted as the yield spread between the U.S. 10-Year Treasury, now yielding 2.1117%, and the Thailand 10-Year Government bond has narrowed to just 0.3483%. From a historical perspective, the 10-year Thailand Government bond yielded as low as 2.41% on December 18, 2008 when Prime Minister Abhisit Vejjajiva was sworn-in as Thailand's 27th prime minister. 

For the week, the Thailand SET tumbled 1.88% to close at 1,526.24 on Thursday, but still managed to gain 1.91% year-to-date. The sell-off in the bank stocks continued as the market believes that bank revenues and profits are at risk from a fall in lending, and a rise in non-performing loans. Although low interest rates decrease borrowing costs, it limits what the banks can charge on loans and what they earn on other investments, meaning lower net interest margins down the road.

Siam Cement Plc [TH:SCC], Thailand's largest industrial conglomerate, said on Wednesday that its first-quarter net profit rose 32% to 11.07 billion baht, boosted by a strong performance from its petrochemical unit and an asset sale. Revenue from Sales surged 10% to 109.28 billion baht year-on-year. Analysts were expecting a profit of 9.86 billion baht. 

The energy sector continued to do well as crude oil surged another 3.2% for the week. The end-of-the-month window dressing by institutions didn’t help much as local individuals were selling. Some retail investors may want to time the market as the old adage says, “Sell in May and go away (or buy in October)”.

From our technical viewpoint, most of last week’s trading was done by algorithm, in which the entering of trade orders and executions are done electronically through pre-programmed trading instructions. The Thailand SET started off on the wrong foot on Monday as it was unable to break out the upper trendline of the falling wedge. In an algorithm trading strategy, a failure in a trendline breakout, or a trendline breakdown, means an automatic sell.

Two bearish crossover events also took place over the next two consecutive trading days. The first bearish crossover event occurred on Tuesday, when the 100-day SMA crossed below the 200-day SMA. For algorithm trading, a bearish crossover means “sell”. 

The second bearish crossover event occurred on Wednesday, when the 50-day SMA crossed below the 200-day SMA. The Thailand SET pullback continued but managed to bounce, at 1513.42, after the BOT announced the rate cut. The Thailand SET closed on Wednesday at 1526.74, just above the 50% Fibonacci retracement level at 1526.66. 

From the chart, the Thailand SET is now stuck between the 50% and 61.8% Fibonacci retracement levels. The Thailand SET could make a corrective advance and break out the falling wedge at about the 1540 level. In the case of a further pull back, there are supports at 1497.88, 1484.91 and 1469.11.

Related Ticker: iShares MSCI Thailand Capped ETF [NYSEARCA:THD]