Analysts see Fed rate hike of 0.5%

Analysts see Fed rate hike of 0.5%

Analysts expect the Federal Reserve to raise interest rates by 0.5% in the middle of this month, putting pressure on stocks, gold and oil to continue their freefall.

After the latest US employment statistics were better than expected, foreign analysts project capital inflows to the Chinese stock market because of news about preparations for Chinese cities to reopen in the middle of next year.

The Thai stock market has been pressured by concerns that the Fed may continue to aggressively raise interest rates for a longer period after the US released service sector index and employment numbers that grew higher than expected in November.

The Institute of Supply Management revealed the US Non-Manufacturing Purchasing Manager Index rose to 56.5 in November, up from 54.4 in October and beating expectations of 53.1. An index above 50 indicates expansion in the service sector.

The US Department of Labor reported non-farm payrolls rose by 263,000 in November, above analysts' expectations of 200,000 jobs, while the unemployment rate stood at 3.7%.

Brokerages said 89% of investors expect the Fed to raise interest rates by 0.50% at its Dec 13-14 meeting, with the rate peaking at 4.984% in May 2023.

News reports that China's stock market has been more bullish in recent weeks, according to Citi, the Bank of America and JP Morgan analysts, raised their investment recommendations.

The reopening of China's economy could bolster consumer goods stocks, which had previously fallen, to an attractive investment level.

Goldman Sachs expects the MSCI China Index and the CSI300 Chinese stock market index to return 16% next year and advises buying stocks in these markets, while JP Morgan projects the MSCI China Index to gain 10% this year and recommends investing in hardware tech stocks and state-owned businesses that can make a profit.

Bank of America issued a positive view on Chinese stocks in November, suggesting accumulation in the internet and financial groups.

Chinese stocks are starting to recover, with the Hang Seng Index soaring 27% in November. It was the biggest monthly gain since 1998, while China's yuan posted its biggest weekly gain since 2005.

Gold prices tumbled after the Fed raised interest rates, falling from a five-month high as of Dec 5 to US$1,809 an ounce, pressured by a strong dollar. This gave support to expectations the Fed would continue to aggressively raise interest rates, according to analysts.

The Gold Traders Association announced on Wednesday the price of 96.5% domestic gold bars, with buying at 29,400 per baht weight and selling at 29,500 per baht weight. For 96.5% gold ornaments, buying is at 28,864.64 per baht weight, with selling at 30,000 per baht weight.

The global spot price was $1,774 per ounce.

Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities, said the Thai bourse swung sideways in negative territory, following other regional stock markets on Wednesday.

The stock market is still pressured by concerns about a projected US recession and continued Fed interest rate hikes, he said.

Another factor is falling oil prices, weighing on energy stocks and energy indices. The market is waiting to see if Beijing will announce measures to ease Covid-19 controls, which will help boost market sentiment, said Mr Therdsak.

The West Texas Intermediate crude oil price for delivery in January as of Dec 6 was down $2.68, or 3.5%, to close at $74.25 per barrel. This was the lowest level since Dec 23, 2021.

Refinery share prices fell as oil prices dropped to the lowest level in the past year, as they may suffer from oil stock losses. The gross refining margin (GRM) continued to decline, according to CGS-CIMB Securities (Thailand).

On Dec 6, the GRM was $5.92 per barrel, down from $6.07 the day before and $8.39 on Dec 1.

The GRM for the fourth quarter is expected to be stable from the previous quarter as well as the same period last year.

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