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Conflict, US inflation pressure local stocks

The war in the Middle East may escalate and US inflation remains high, putting pressure on Thai stocks to fall more than 2%.

The Stock Exchange of Thailand (SET) is facing fresh sell-off pressure, with the index falling close to a key resistance level of 1,400 points on Monday while gold prices surged to nearly US$1,950 an ounce after analysts expected escalating conflict between Israel and Hamas.

Meanwhile, US inflation has increased, putting pressure on the Federal Reserve to increase interest rates or continue to maintain high interest rates over a prolonged period to control inflation.

Foreign investors are expected to return to the Thai stock market once they see progress in the government’s economic policies, boosting equities and the baht.

The Thai stock market has fallen sharply in line with stock markets globally due to concerns about the possibility of powers outside the Middle East getting dragged into the conflict.

The SET index finished the morning trading session at 1,420.42 points yesterday, down by 30.33 points or 2.09%, with a total trading value of 32.8 billion baht.

JP Morgan Chase chief executive Jamie Dimon has warned that we may be living through “the most dangerous time the world has seen in decades”.

The war in Ukraine compounded by last week’s attack on Israel by Hamas may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships.

Hua Seng Heng, a leader in the gold market, says gold prices have fluctuated according to several factors. Bullish factors include market turbulence, rising expectations of a recession, concerns about the banking crisis and increasing geopolitical conflicts, including the Russia-Ukraine war and the Israel-Hamas conflict.

Global gold prices could hit $1,950 per ounce in the near term as the war in the Middle East shows no signs of ending soon.

Bearish factors include the trend of rising interest rates or maintaining high interest rates over a prolonged period in an effort to control inflation by the Fed.

The global gold market is experiencing an upward trend, hitting $1,932 per ounce on Oct 13, an increase of $63.74 or 3.41% from the previous day, as the Israel-Hamas conflict intensified.

At 11.47am on Oct 16, the global gold price dropped to $1,920.18 per ounce, down by $5.48 or 0.28% due to the expectation of fewer cuts in interest rates or a decision to leave rates unchanged by the Fed as inflation is still high.

Hua Seng Heng further predicts crude oil prices may surge above $100 per barrel as it is highly probable that Iran may close the Strait of Hormuz, a critical waterway for the movement of 17.2 million barrels of oil per day or 20-30% of the world’s total consumption.

The UAE, Kuwait, Iran, Qatar, Bahrain and Iraq all use this route to transport oil. If this route is closed, it will affect the global oil supply.

Saudi Arabia and Russia said they were continuing voluntary oil cuts until the year-end which may tighten supply and cause oil shortages in some countries.

However, the baht strengthened as foreign investors returned to buy Thai stocks and gold. The baht opened slightly stronger on Monday at 36.19 to the dollar, appreciating from previous week’s close of 36.40.

Poon Panichpibool, markets strategist at Krungthai Bank, predicted the baht would be in the range of 36.00-36.30 to the dollar as of Monday.

Asia Plus Securities (ASPS) said this week investors will continue to closely monitor the ongoing conflict in Israel.

Oil prices rose by more than 5% on Friday as investors remained on edge about escalating geopolitical tensions in the Middle East.

This has had a positive effect on equities in the energy sector. Rcommended stocks are PTT Exploration and Production (PTTEP), Thai Oil (TOP) and PTT.

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