Thailand's central bank is again facing pressure, this time to help the banking sector raise its liquidity in a plan that the ruling party kingpin says will spur lending and give the new prime minister an economic runway.

Last week, former Prime Minister Thaksin Shinawatra, the Pheu Thai Party's founder and father of the current prime minister, proposed that the Bank of Thailand cut the fee it collects from commercial banks, saying this would allow lenders to make more loans and help support the economy.

Thaksin, who returned to Thailand last August after more than a decade in self-exile, made the proposal during a speech he called, "Vision for Thailand."

The central bank collects 0.46% of commercial banks' deposits annually, around 70 billion baht ($2 billion).

"If we cut the fee by half," Thaksin said, "[we could] use another half of the money to help reduce mortgage loans and car loans for people."

Thaksin's idea comes with the country's household debt, at 91% of gross domestic product (GDP), causing economic headaches.

Thaksin focused on another symptom, saying Thailand is in a "loan contraction," adding that this puts small and midsize enterprises (SMEs) at risk of suffering liquidity crunches.

Official data from the central bank shows commercial banks' outstanding normal loans peaked in the first quarter of 2023, at about 17 trillion baht, with the figure dropping to about 16.7 trillion baht in the April-June quarter of 2024.

The BOT responded on Saturday, saying it had not decided to cut the fee and stressing it would maintain its independence in handling monetary policy and heeding the nation's financial stability.

"It is too early to make any change [on the fee]," Gov. Sethaput Suthiwartnarueput told reporters.

Said BOT Assistant Gov. Suwannee Jatsadasak: "[Commercial] banks assess their costs and loan-loss provisions before lending. It's not about the fee."

She added that the 0.46% fee is used to repay Finance Ministry bonds, particularly those issued during the COVID pandemic.

Outside analysts agree the fee is not an issue. "Banks have abundant liquidity to lend," said Kittima Sattayapan, an analyst at the research arm of InnovestX. "However, they are very cautious about lending money as they assess the economic outlook as still gloomy and see risks in clients' ability to pay."

Thaksin's speech was not the first time a Pheu Thai figure publicly called for the central bank to make a specific move. Earlier this year, former Prime Minister Srettha Thavisin pressed hard for the BOT to cut its policy rate to spur lending and economic activity.

The central bank has stood firm, keeping the rate at 2.5% since raising it to that level last September.

Pheu Thai and Thailand now have a new prime minister, Thaksin's youngest daughter, Paetongtarn Shinawatra, and Thaksin wants to quickly stoke economic growth. Thailand's GDP expanded 2.3% year-on-year in the April-June quarter, better than the previous quarter but lagging neighbors like Malaysia and Vietnam.

During his speech on Thursday, Thaksin said the Pheu Thai government will prioritize new investment and private spending to help boost the economy, adding that he believes bank lending is key to spurring private spending.

Although the BOT declined to make any immediate change to the fee, Gov. Sethaput said it was ready to adjust its monetary policy to match the changing economic situation and to collaborate with the Finance Ministry's fiscal policy to support the economy.

"We are open and ready to adjust our rate policy to match the changing economic situation," Sethaput said. "We are independent, but independence comes with accountability as well."

Source: NikkeiAsia

What happened overnight

What happened yesterday

USD: The activity data will now be key

As James Knightley discusses here, Fed Chair Jerome Powell used his speech at the Jackson Hole symposium to pre-announce the start of the Fed's easing cycle in September. Short-dated US rates fell about 15bp into Monday's session and the DXY dollar index sold off around 1%. In effect, Powell declared the inflation battle won, with the attention now turning squarely to the US labour market. The latter featured heavily in Powell's speech.

Notably, US one-month OIS rates price two years forward remain at their lows at 3.00%. This pricing looks consistent with a soft landing and assumes some orderly – perhaps 25bp per meeting – Fed rate cuts through to autumn 2025. Arguably near 100, the DXY prices that scenario in and for DXY to break convincingly under 100, fears of a US recession will have to build. And in the middle of all this, we have US elections in early November.

Therefore, much lower dollar levels from here require much weaker US activity data, where focus will be given to the August jobs report on 6 September. This week sees some second-tier US activity data in the form of consumer confidence (released today and Friday), plus the weekly initial claims data (Thursday) and personal income and spending data (Friday). Given Powell's speech on Friday, the release of the Fed's preferred measure of inflation – the core PCE deflator – probably takes on a less pivotal role now. And a 0.2% month-on-month release is unlikely to move markets much.

We note the dollar is at some significant medium-term support levels. We do not think it needs to rally much from here, but equally, the catalyst for a major downside break-out may not be present this week. DXY looks set to consolidate in a 100.50-101.60 range for now.

EUR: A coiled spring?

We have been quite bullish on EUR/USD this month. But the question is whether the move close to 1.12 marks the end of the rally or whether there is more to come. Technically, we think EUR/USD does resemble a coiled spring and that a move above 1.12 could trigger some strong follow-through buying as the speculative community sniffs out a new trend. Yet it is not clear from where that catalyst for a break-out will come this week. We have discussed dollar inputs above and from the eurozone side, the main candidate could potentially be Friday's release of the flash CPI data for August. Any upside surprise here could rein in the market's pricing of two-and-a-half ECB rate cuts by year-end, narrow EUR:USD two-year swap differentials still further and support EUR/USD.

On the subject of ECB rate cuts, let's see what the two hawks, Klaas Knot and Joachim Nagel, have to say when they speak today. Elsewhere, the run-up in oil prices on the back of increased Middle East tension and Libyan supply challenges will not be helping EUR/USD. And after a strong rally since early August, it looks like EUR/USD could be due some consolidation. We would favour a 1.1100-1.1200 trading range for now – waiting for some US activity data to disappoint.

GBP: Governor Bailey yet to turn fully dovish

UK money markets have yet to fully react to Bank of England Governor Andrew Bailey's speech last Friday. Unlike Powell, Governor Bailey remained concerned over the "intrinsic" inflation in the economy and also felt that the economic costs of tighter policy could be less than what they were in the past. His comments stand to keep a wedge between US and UK rates, where money markets continue to price a shallower and slower easing cycle for the BoE.

GBP/USD could see some consolidation in a 1.31-1.32 range before moving higher still. EUR/GBP could make a run towards its recent 0.8400 lows. And it looks like we'll have to revise our medium-term sterling profile higher.

HUF: National Bank of Hungary to stay on hold today

The National Bank of Hungary (NBH) meets to set rates today. As ING's Peter Virovacz discusses in his NBH preview, he believes that the upside inflation surprise in July and the slight deterioration in the country’s risk perception may prompt the central bank to err on the side of caution this time. As a result, we expect the base rate to remain unchanged at 6.75%, while our call for the 2024 terminal rate remains at 6.25%.

The forint perhaps has not taken advantage of a higher EUR/USD as much as it should, but an on-hold decision today might be enough to get EUR/HUF back to 392. Overall, however, we expect EUR/HUF to continue trading in a 390-400 range medium term.

Source: ING

The second estimate of German GDP growth in the second quarter of the year confirms that the economy fell back into contraction, shrinking by 0.1% quarter-on-quarter, from +0.2% QoQ between January and March. On the year, GDP growth was up by 0.3%.

While private consumption dropped by 0.2% QoQ and investments plunged by more than 2% QoQ, government consumption rose by 1% QoQ. Net exports were also a drag on growth. In fact, the second quarter performance of the German economy looks like a reversal of the first quarter performance.

No imminent rebound in sight but still too early to give up on optimism

The German economy had started the year with some optimism. First-quarter GDP growth was a positive surprise and confidence indicators improved, giving rise to hopes that the pessimism of the last few years was behind us, and that discussions about whether or not Germany was the "sick man of Europe" could be put to one side. The truth, however, is that GDP growth in the first quarter was driven by the mild winter weather and a downward revision of fourth quarter GDP. Therefore, it was not what we would call a sustainable and healthy growth story.

With disappointing second-quarter growth and almost all confidence sentiment indicators pointing south, the German economy is currently back where it was a year ago: stuck in stagnation as the growth laggard of the entire eurozone.

Still, we are not ready, yet, to give up on at least some optimism for the second half of the year. The highest increase in real wages in more than a decade could still open German consumers’ wallets and there only needs to be a small improvement in industrial orders to bring the long overdue turning of the inventory cycle. Admittedly, hopes of a consumer-driven recovery in the second half of the year got another hit this morning with consumer confidence dropping.

The fact of the matter is that the German economy is currently learning the hard way what it means to be in the middle of cyclical headwinds and structural changes. It is stuck in stagnation.

Source: ING

The week started on mixed feelings

FX and commodities

China troubles

Chairman Powell has officially joined the other central bankers at the Jackson Hole conference who have been signaling more interest rate cuts to come, notably those in Europe and Canada. Also, the minutes from the July 31st Federal Open Market Committee (FOMC) meeting were released last Wednesday, revealing that “several” FOMC members saw “a plausible case” for cutting key interest rates by 0.25% last July.

However, the “vast majority” of FOMC members agreed that “it would likely be appropriate to ease policy at their next meeting,” namely on September 18th, if inflation data continued to come in as expected.

The minutes also revealed that “almost all (FOMC) participants remarked that while the incoming data regarding inflation were encouraging, additional information was needed… before it would be appropriate” to lower rates. As a result, a cut on September 18th now seems virtually certain.

Economist Ian Shepherdson is estimating that the July Personal Consumption Expenditure (PCE) index will come in at 0.13% this Friday. This is the Fed’s favorite inflation indicator, and it is expected to be very close to the Fed’s inflation target. The PCE has been flat recently – 0% in May and 0.1% in June – so if the July PCE comes in at 0.1% or less, the PCE will be well within the Fed’s 2% inflation target rate.

As Labor Day approaches, with the monthly jobs report coming out on the Friday after Labor Day, the Labor Department announced a major statistical “glitch” in the jobs data last Wednesday, revealing that 818,000 payroll jobs virtually disappeared in the past year (through the end of March), due to a massive downward revision, mostly due to people working multiple jobs and/or not having their taxes withheld.

The BLS confirmed that only 2.08 million jobs were created, not 2.90 million, in the 12 months through March 31, 2024. This is the largest annual revision to payroll data since 2009! This massive downward revision was announced during the Democratic National Convention, but they didn’t bring it up!

Another embarrassing revision is that the Biden economy is slowing down. The Atlanta Fed last week revised its third-quarter GDP estimate to a 2% annual pace, down from its previous 2.4% estimate.

In addition to her huge ($5 trillion) tax increase, Harris revealed her “federal ban on price gouging on food and groceries” on the Friday before the convention, so that “big corporations can’t unfairly exploit consumers to run-up excessive corporate profits on food and groceries”

But a big problem is emerging already, namely that large food producers, like Hormel (HRL) and Tyson Foods (TSN), rely on immigrant labor and actively help their immigrant workers achieve legal status in America. In other words, some of the biggest beneficiaries of the Biden Administration’s open border polices are major food processors that actively facilitate immigration applications for green cards.

So essentially, the Harris campaign is threatening food companies that actively help immigrants achieve legal status. As a result, I suspect that the Harris plan to punish major food companies will fizzle as her powerful forces of political support come into conflict.

The Harris team might also face problems with unions, as a rail strike in Canada commenced on Thursday as the Teamsters Union is seeking higher pay for its members. If this rail strike persists for several days, it could start to crimp economic growth in both Canada and the U.S.

You may remember that the head of the Teamsters Union spoke at the Republican National Convention, but he was not invited to speak at the DNC. Conspiracy theorists may conclude that the Teamsters Union is trying to disrupt economic growth in order to help elect Donald Trump, but that would be a stretch.

President Biden prohibited an impending rail strike back in December 2022, since it would have been too disruptive to the economy, so the Biden Administration has alienated the Teamsters Union, which is now wielding its influence in the elections.

Source: SEEKIN GALPHA