8 May 2014
Asia EM Express: Removal of Thai PM increases political uncertainty and poses risk to growth
FXStreet (Łodź) - The political crisis in Thailand intensified on Wednesday after the country's Constitutional Court ordered Prime Minister Yingluck Shinawatra to step down on charges of abusing power. Nine other members of her cabinet were dismissed as well.
The court stated that the PM's decision to remove the head of national security in 2011 "violated the constitution." The commerce minister was nominated to replace Yingluck Shinawatra by the remaining 26 cabinet members.
Thailand was submerged in political uncertainty for several months now, leading to social unrest and a deterioration of the economy. The exacerbation of the situation will further weigh on tourism and investment and consequently on growth.
Following the Thai Constitutional Court's announcement yesterday “asset prices have taken these developments in strides, with the baht and local equities little changed on the day,” as the BBH Global Currency Strategy Team point out.
“However, the long term consequences of the political turmoil will be much more important,” the analysts add, suggesting that I could further undermine manufacturing output and domestic demand.
Nomura's Thailand Research Team suggest to “remain cautious on THB” in the medium-term. “Ongoing, political uncertainty and social unrest will likely continue to adversely affect the economy as it constrains fiscal policy support from the government,” the experts say. “Monetary policy should also remain loose with the BOT likely to cut the policy rate by another 25bp, albeit with a lower probability, in the coming months and maintain its preference for a weak THB.”
Economic data
On Wednesday China released April trade balance numbers. The country's trade surplus widened significantly to $18.45B from $7.71B and above forecasts of $13.90B. Annual Exports climbed 0.9%, compared with the 6.6% fall and against consensus of a 1.7% drop. Imports rose 0.8%, after declining 11.3% and against forecasts of -2.3%.
Prakash Sakpal from ING believes that due to the lack of “an export-led recovery” China's “mini-stimulus” should “support GDP growth at 1Q’s 7.4%.”
“We revise our CPI inflation forecast for 2014 to 2.3% from 2.6%,” the analyst adds.
Taiwan published trade balance data on Wednesday. The trade surplus of $1.95B widened to $2.53B in April, above expectations of $2.21B. Exports grew 6.2%, up from +2% and above projections of 5.8%. Imports increased 5.8%, down from +7.5% and below forecasts of a 6.9% rise.
“2014 appears to be another year with a large trade surplus,” Prakash Sakpal comments. “We reiterate our below-consensus 2.6% GDP growth forecast for this year.”
Meanwhile, Thai Consumer Confidence dropped to its lowest level in 13 months in April, from 68.8 to 67.8.
Technicals
On Thursday USD/THB was up by 0.30 at 32.47. Yesterday the pair's daily FXStreet Trend Index was slightly bullish, with the OB/OS Index overbought. RSI was at 59 at the last close, and has climbed to 63 so far today.
At the moment of writing USD/CNY was down by 0.07% at 6.2298. On Wednesday the pair's daily FXStreet Trend Index was slightly bearish, with the OB/OS Index neutral. RSI was at 54 at the last close, and has slid to 40 so far today. Daily 2-StDev Volatility Bandwidth was shrinking at 165 pips, with ATR (14) expanding at 112 pips. The 1D 200 SMA was at 6.1193 , while the 1D 20 EMA was at 6.2352.
The court stated that the PM's decision to remove the head of national security in 2011 "violated the constitution." The commerce minister was nominated to replace Yingluck Shinawatra by the remaining 26 cabinet members.
Thailand was submerged in political uncertainty for several months now, leading to social unrest and a deterioration of the economy. The exacerbation of the situation will further weigh on tourism and investment and consequently on growth.
Following the Thai Constitutional Court's announcement yesterday “asset prices have taken these developments in strides, with the baht and local equities little changed on the day,” as the BBH Global Currency Strategy Team point out.
“However, the long term consequences of the political turmoil will be much more important,” the analysts add, suggesting that I could further undermine manufacturing output and domestic demand.
Nomura's Thailand Research Team suggest to “remain cautious on THB” in the medium-term. “Ongoing, political uncertainty and social unrest will likely continue to adversely affect the economy as it constrains fiscal policy support from the government,” the experts say. “Monetary policy should also remain loose with the BOT likely to cut the policy rate by another 25bp, albeit with a lower probability, in the coming months and maintain its preference for a weak THB.”
Economic data
On Wednesday China released April trade balance numbers. The country's trade surplus widened significantly to $18.45B from $7.71B and above forecasts of $13.90B. Annual Exports climbed 0.9%, compared with the 6.6% fall and against consensus of a 1.7% drop. Imports rose 0.8%, after declining 11.3% and against forecasts of -2.3%.
Prakash Sakpal from ING believes that due to the lack of “an export-led recovery” China's “mini-stimulus” should “support GDP growth at 1Q’s 7.4%.”
“We revise our CPI inflation forecast for 2014 to 2.3% from 2.6%,” the analyst adds.
Taiwan published trade balance data on Wednesday. The trade surplus of $1.95B widened to $2.53B in April, above expectations of $2.21B. Exports grew 6.2%, up from +2% and above projections of 5.8%. Imports increased 5.8%, down from +7.5% and below forecasts of a 6.9% rise.
“2014 appears to be another year with a large trade surplus,” Prakash Sakpal comments. “We reiterate our below-consensus 2.6% GDP growth forecast for this year.”
Meanwhile, Thai Consumer Confidence dropped to its lowest level in 13 months in April, from 68.8 to 67.8.
Technicals
On Thursday USD/THB was up by 0.30 at 32.47. Yesterday the pair's daily FXStreet Trend Index was slightly bullish, with the OB/OS Index overbought. RSI was at 59 at the last close, and has climbed to 63 so far today.
At the moment of writing USD/CNY was down by 0.07% at 6.2298. On Wednesday the pair's daily FXStreet Trend Index was slightly bearish, with the OB/OS Index neutral. RSI was at 54 at the last close, and has slid to 40 so far today. Daily 2-StDev Volatility Bandwidth was shrinking at 165 pips, with ATR (14) expanding at 112 pips. The 1D 200 SMA was at 6.1193 , while the 1D 20 EMA was at 6.2352.