Kaohoon Morning Brief – 3 November 2022

1) FSS expects bearish sentiment in the market as FedWatch increases terminal rate at 5-5.25%

Finansia Syrus Securities (FSS) expected the SET to make short-term retreats to its support at 1,615 points (+/-), in line with the bearish sentiment from the U.S. following the Fed meeting results and the Fed chair’s remark that the peak may be higher than expected. The latest FedWatch increased the  probability that the policy rates will peak at 5-5.25% in a meeting in March 2023 from 4.75-5% earlier. As a result, risk assets face pressure again after rebounding sharply in October.

However, FSS still viewed that the SET has a more limited downside. It should outperform its global peers due to Thailand’s rising economic outlook and the mid-term fund inflow outlook into the Thai equity market. FSS still preferred domestic and reopening plays. For trading, place selective bets on stocks with a healthy 3Q22 profit forecast.


2) Fed signals different approach on rate hike after a 75bps increase

The U.S. Federal Reserve on Wednesday raised its short-term borrowing rate by 0.75 percentage point, taking its target range to 3.75%-4%, the highest since January 2008.

In the future monetary policy decision, the Fed will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

However, Powell dismissed the idea of pausing the hike soon, but will discuss a possibility of slowing the pace down at the next meeting or two.


3) JPMorgan expects longer period at Fed’s terminal rate after Wednesday comments

JPMorgan stated that it continued to expect the Fed to step down to 50bps hike at the December meeting and then again to 25bps at the January/February meeting but the risks are now for a higher terminal rate that is closer to market pricing.

At the same time, JPMorgan stated that the hawkish comments by the US central bank also pointed to a longer period at terminal rate, something markets have not fully (in)digested.


4) Hong Kong’s central bank raises interest rate by 75bps

The Hong Kong Monetary Authority increased its benchmark interest rate for a sixth time by another 75 basis points, hiking the rate to 4.25% to tame high inflation.

The Hang Seng Index dropped 2.23% in the morning session, coming out of a half day trading session yesterday due to a typhoon warning.