SET BREAKS RESISTANCE BUT US INDICATORS CAUSE CONCERN

MARKET RECAP: The SET broke the 1,650 resistance level early this week, thanks to positive news about the 90-day truce in the US-China trade dispute. However, the index was later pressured by heavy profit-taking amid concerns about an inverted US yield curve, which can be a sign of recession.

MARKET OUTLOOK: The SET is projected to move sideways with the support at 1,640 points and resistance at 1,690. As the year draws to a close, investors will be digesting a number of new economic forecasts, including the Morgan Stanley Strategy Outlook report for 2019. The US investment bank has cut US stocks to underweight and upgraded emerging markets including Thailand from underweight to overweight. Among its other observations and predictions:

■ The Brent oil price will move back up to $80 a barrel.

■ The US dollar has already peaked and will depreciate against other major currencies.

■ The US 10-year Treasury yield will fall back to 2.75%.], while the outlook for gold will turn bullish again

US GDP growth will moderate to 2.3% from 2.9% in 2018, along with softening in the EU to 1.6% from 1.9%. Emerging markets overall should slow to 4.7% from 4.8% but Asian GDP growth should remain healthy. Expansion in China will be 6.3%, versus 6.6% this year, with Indian GDP growth easing to 7.6% from 7.7%.

■ Thai GDP growth will slip to 3.9% next year and 3.8% in 2020, compared with an estimated 4.1% this year. But there is no stagflation risk (GDP still growing, flat inflation at 1%, and an interest rate at 2%, better than regional peers).

In its review of the monetary policy outlook in major economies, Morgan Stanley predicts:

■ The Fed will raise US interest rates only two times in 2019, both in the first half. That would follow a 25-basis-point rise this month.

■ The European Central Bank will formally end quantitative easing and start a monetary policy operation that involves the purchase and sale of long-term bonds.

■ The Bank of England is expected to start unwinding QE in the fourth quarter of 2019.

■ The Bank of Japan is expected to purchase more assets, including purchases via exchange-traded funds.

■ In Thailand, the central bank’s Monetary Policy Committee is projected to keep the policy rate at 1.5%, a positive surprise to the market as there was a consensus that the MPC would raise its rate by 25 basis points to 1.75% at its Dec 19 meeting.

KEY DOMESTIC FACTORS: Among economic indicators in October, exports rebounded and domestic activity firmed up. Following a drop in dollar value of 5.5% year-on-year in September (largely due to an unusually high September 2017 base tied to a surge in gold exports), goods exports in October totalled $21.7 billion, up 8.4% year-on-year. Almost all major markets including China imported more from Thailand.

■ The 90-day trade truce between the US and China may trigger another round of export order front-loading. Although at first glance one might assume that the delay would improve the global trade environment, there is uncertainty as to what might happen after March 31. Also, the effects of tariffs on China’s supply chains warrant monitoring, as exports of intermediate goods to China, such as rubber and electronic parts, continue to decline.

■ Imports in October increased 13.3% yearon-year to $20.4 billion, due to growing imports of raw materials and consumer goods. The trade surplus narrowed from $2 billion to $1.3 billion.

■ Tourism has not yet recovered. Arrivals in October were just 2.71 million, a decline of 0.5% — the first year-on-year slippage for 19 months. Expanding numbers from other countries could not offset the effect of a 20% dive in arrivals from China. As a result, the current account surplus declined from $2.4 billion in September to $1.9 billion in October.

■ Domestic indicators point to stronger consumption and investment. The Private Consumption Index rose 6.5% year-on-year, with expansion across all spending categories, particularly car purchases. A rebound in farm income tied to greater output helped lift the index.

■ The Private Investment Index also rose 2.5%. Notably, the Construction Materials Index surged 12.6% year-on-year to a 62-month high. This reflected public infrastructure activity and the 6.2% year-on-year increase in public capital expenditure.

■ Going forward, private consumption growth is likely to weaken. Persistently high household debt and subsiding tailwinds from car purchases, particularly after the election, will ease spending. The government’s 80-billion-baht support package, which is less broad-based than in previous years, will help hold up purchasing power in the short term. However, ongoing infrastructure-related activities will remain a hotspot of growth in private investment.

The 90-day trade truce between the US and China may trigger another round of export order frontloading, as there is uncertainty about what might happen afterward.