Fed Powell testimony heightens insurance rate cuts, boosts stocks

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Fed Powell testimony heightens insurance rate cuts, boosts stocks

Against the dollar, Thai baht on the previous trading day moved between 30.64-30.89 and closed around 30.85.

Presenting to the Congress, Fed Chair Powell reported that, over the first half of 2019, US economy progressed well, with quite healthy labor market but subdued inflation. He added that trade tensions and global growth concerns overshadow the US economic outlook. Reflecting trade escalations, business investments slowed down. Accordingly, the FOMC would act as appropriate to retain economic expansion. Overall, insurance or precautionary rate cuts were heightened.

In addition, the testimony boosted stocks. The S&P 500 index briefly increased beyond 3,000 before closing at 2,993.07. Meanwhile, the greenback weakened against most of major currencies.

On Thailand’s financial system stability, the report from the BoT meeting on 5 July between the MPC and Financial Institutions Policy Committee just released says that risk exposure of Thai financial system instability overall still remains. Namely, financial instability at present includes high household debts particularly car loans, real estate speculations seemingly eased after LTV taking effect in April but still requiring monitoring, existence of search-for-yield behaviors, expansion of saving-cooperatives assets.

As fixed income securities in developed markets are less attractive due to slower growth, slower inflation, and rising uncertainties, Aberdeen Standard Investments’ head of global emerging market debt said that emerging-market fixed-income holdings could preferentially be profitmaking investments. Specifically, he picked Brazil, South Africa, and Russia.

Moving around 30.57-30.67 this morning, USDTHB could be between 30.55-30.70 today.


US treasury yields drop as Fed to act on muted inflation and global uncertainties

Thai benchmark government bond yield (LB28DA, 9.5 years) on the previous trading day was 1.98%, relatively unchanged. Thai and US 10-year bond yields on the previous trading day closed at 2.02%, +0.12 bps, and 2.07%, relatively unchanged, respectively.

On Fed Powell testimony highlighting muted inflation and global uncertainties, US treasury yields, especially short-dated, dropped. US 3-month and 2-year treasury yields decreased by 6 and 10 bps, respectively.

On US yield curve inversion, US 10-year-3-month treasury spread remained negative, 10-year: 2.07% v 3-month: 2.20%, thus spread: -13 bps, compared to -19 bps on the earlier trading day, while 10-year-2-year treasury spread was still well positive, +25 bps.

Thai benchmark government bond yield (LB28DA, 9.5 years) could be between 1.97-1.99% today.


Sources: Bangkokbiznews, BBC, Bloomberg, CNBC, CNN, Financial Times, Investing.com, Reuters, South China Morning Post