Strategy Note /

Thailand (Bualuang): Thai Market Strategy - Pressure ahead of Fed rate hike

  • Pressure ahead of the Fed’s first rate hike

  • Higher bond yields squeeze equity yield gap

  • Higher bond yields raise funding costs

Poramet Tongbua
Poramet Tongbua

Equity Research Analyst

Bualuang Securities
25 January 2022

The market now expects the US Federal Reserve to tighten mone-tary policy faster and steeper, due to persistently high inflation in the US. The FOMC this week may shed more light on the scale of the planned tightening. Equity markets could come under pressure if market perceptions of timing shift forward more stridently. The historical record of the SET’s rebound after first FFR rise in Dec 2015 could be encouraging for this round—it was marked by only moderate downside, followed by a resumed market uptrend after a higher FFR was fully priced in.

Pressure ahead of the Fed’s first rate hike

The first Federal Funds Rate (FFR) rate rise is now widely expected to be as early as March 2022 (and a total of four hikes this year). Quantitative tightening (QT) may also start early (last time there was a two-year time lag between the first FFR rise in Dec 2015 and the start of QT in Jan 2018). Equity markets have started pricing in an earlier first FFR increase, so may not see a sustained rebound till after the first rate hike is assured.