THAILAND: Growth Outlook Likely To Drive Another BoT Rate Cut
The Bank of Thailand (BoT) decision is later today and 17 out of 21 analysts on Bloomberg expect it to cut rates 25bp to 1.75% (see MNI BoT Preview). In its February statement, it said that it would be monitoring the impact of “trade policies of major economies”, Thai manufacturing activity and loan growth/credit quality. These factors and the stronger THB plus March’s earthquake signal that the central bank is likely to revise down its growth forecast from “around 2.5%”.
- The baht has strengthened around 8% y/y both against the US dollar and in trade weighted terms. This is likely to weigh on exports and the important tourism sector, which saw a 6.9% y/y decline in arrivals in February and is likely to be impacted by the earthquake.
- Q1 customs export growth improved to 15.1% y/y from 10.5% in Q4, but it is highly exposed to the US with 20% of 2024 exports going there worth 11.4% of its GDP, only second to Taiwan in the region. Its exposure to China is a lot less but not immaterial at 12.7% of exports and so they could be impacted directly and indirectly from US trade policy. April S&P Global manufacturing PMI prints on May 2 and may show early impacts on the region given Thailand’s exposure.
US proposed tariffs & country exposure to the US
Source: MNI - Market News/LSEG/US Treasury
- The manufacturing PMI eased to 49.9 from 50.6 in March and the Q1 average at 50.0 was down from 50.5 in Q4 and is signalling stagnation in the sector. Orders are soft with export orders contracting.
- March manufacturing production fell 0.7% y/y, this is not as weak as it has been over recent months, while capacity utilisation rose to 63.7 from 59.0, the highest in two years.
- BoT noted in February that “loan growth and credit quality showed signs of stabilising”. This has generally continued but there was a slight softening in lending.
Thailand manufacturing
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE BONDS: Richer Of Tomorrow’s RBA Policy Decision, No Change Expected
ACGBs (YM +8.0 & XM +9.5) are stronger but off session bests, aligning with a slight paring of early gains for US tsys in today’s Asia-Pac session. Currently, cash US tsys are 4-6bps richer after Friday’s strong risk-off-induced rally.
- Outside of the previously outlined private sector credit and MI inflation gauge, there hasn't been much by way of domestic drivers to flag ahead of tomorrow’s RBA Policy Decision.
- While a 25bp rate cut in April is given only a 5% probability, a cumulative 71bps of easing is priced by year-end. The market’s reluctance to price in a cut for tomorrow reflects the RBA’s cautiousness surrounding February's easing.
- Cash ACGBs are 7-9bps richer with the AU-US 10-year yield differential at +17bps.
- Swap rates are 6-7bps lower, after being 10-11bps lower early.
- The bills strip has bull-flattened, with pricing +4 to +8.
- Tomorrow, the local calendar will see Retail Sales ahead of the RBA Decision, with the market expecting a rise of 0.3% m/m in February after 0.3%.
- After today’s May-28 supply, the AOFM plans to sell A$800mn of the 3.75% 21 May 2034 bond on Wednesday and A$600mn of the 1.00% 21 November 2031 bond on Friday.
FOREX: Safe Havens Outperform Amid Weaker Equities & Lower Yields
Yen gains have dominated the first part of Monday trade, up 0.50% versus the USD. CHF has also risen against the USD, ensuring lower USD index levels. The BBDXY was last near 12740.4, off a little over 0.1%. Higher beta plays have struggled although losses haven't been large.
- The risk off tone in FX markets has been reflected in cross asset trends as well. Weekend news of Trump threatening Russia with tariffs (over the Ukraine peace deal), a potential strike on Iran and ahead of liberation day on Wednesday when reciprocal tariffs will be announced, is all contributing to the risk off move.
- US equity futures are down sharply, following Friday cash losses. Eminis were last off 0.60%, Nasdaq futures were off 1.15% (up from session lows). US Tsy futures have risen, while cash Tsy yields are off more than 5bps for some part of the curve. Gold has hit fresh record highs above $3110.
- Regional equities are down sharply, led by Japan and tech sensitive plays.
- USD/JPY got to lows of 148.73, but sits slightly higher now (last near 149.10/15). USD/CHF was tracking close to 0.8790. We had Japan data earlier on IP and retail sales, but sentiment wasn't shifted.
- AUD and NZD are ticking lower. NZD/USD was last near 0.5705/10, with dips under 0.5700 supported. AUD/USD was close to 0.6280, also near session lows. AUD/JPY was last near 93.60/65, just up from March 20 lows (near 93.15). NZD/JPY is back to 85.10/15, fresh lows since the middle of the month.
- Looking ahead, German February retail sales and German/Italian March preliminary CPI are released. ECB’s Panetta and Villeroy speak. In the US the March MNI Chicago PMI and Dallas Fed manufacturing print.
OIL: Crude Monitoring Tariff Landscape Carefully
Oil prices are moderately lower during APAC trading after a very short-lived jump at the start of the session in response to US President Trump’s threat to impose primary and secondary tariffs on Russian and Iranian oil. Crude has trended down since then in line with the deterioration in risk sentiment. WTI is 0.4% lower at $69.10/bbl after a low of $68.81 and Brent -0.4% to $72.46/bbl following a drop to $72.28.
- Oil is likely to see a volatile week as it worries about the global demand impact of reciprocal tariffs to be announced April 2 but also the effect on supply if the US follows through on threats to Russia and Iran. Trump is proposing “secondary” tariffs on those who buy oil from Russia and Iran, which would have a significant effect on China. This warning has already been made on those who buy from Venezuela.
- Trump sounded more conciliatory earlier today though implying that measures against Russia weren’t imminent and that he trusted President Putin would not “go back on his word”, which brought oil prices off their intraday high. Trump and Putin are due to speak later this week.
- India and China have been buying discounted Russian crude since it invaded Ukraine in 2022. It is the world’s third largest producer and so further restrictions on its exports would push prices higher. According to Bloomberg, they reached a 5-month high in March.
- Later US March MNI Chicago PMI and Dallas Fed manufacturing print, as well as German February retail sales and German/Italian March preliminary CPI are released. ECB’s Panetta and Villeroy speak.
