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Thailand Covid, lack of tourism hit Thai baht

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Thai Baht banknotes and coins.

Artur Widak l NurPhoto via Getty Images

The Thai baht, once the strongest-performing currency in Asia before the pandemic, has been steadily falling in 2021 and is this year’s worst-hit currency in the region, according to Mizuho Bank.

The Japanese bank pointed to “uncharacteristic under-performance in the Thai Baht, rendering it the worst performer to date in 2021” in a note on Friday.

The Thai baht has plunged more than 10% against the U.S. dollar year-to-date, as of Monday morning, according to Refinitiv Eikon data.

Thailand’s currency is the weakest-performing this year compared to other major Asia Pacific currencies, according to Refinitiv. Against the greenback, the Japanese yen is nearly 7% lower, the Malaysian ringgit declined by 5%, while the Australian dollar is down 4.43% year-to-date.

“At face value, THB as the unequivocal and significant laggard does not square with Thailand’s solid (albeit diminished) current account surplus or relatively low inflation,” wrote Vishnu Varathan, head of economics and strategy at the bank.

In 2019, before the Covid pandemic hit, there were concerns about the strengthening Thai baht, which was buoyed by its large trade surplus. A stronger currency makes the country’s exports more expensive, causing them to be less attractive in international markets.

Tourism decline hits Thailand

Still, the Asian currency’s underperformance this year cannot be solely blamed on the Covid pandemic, considering that the impact of the delta variant on the rest of the region is “far more dismal,” Varathan said.

Varathan pointed out the sharp decline in tourism numbers has actually multiplied the “Covid devastation” on Thailand’s economy.

They want to fully reopen by October. I think that’s probably too ambitious, probably not going to happen.

Euben Paracuelles

Chief ASEAN economist, Nomura

Thailand had only over 34,000 tourist arrivals as of May this year, compared with over 39 million in 2019, according to data from its tourism ministry as well as the World Bank.

The Southeast Asian nation relies heavily on tourism dollars for economic growth. Tourist spending accounted for about 11% of Thai GDP in 2019, before the pandemic.

Fewer tourists also mean lower demand for the Thai baht.

“The sheer force of this ‘tourism multiplier’ means that it remains the decisive drag on THB,” Varathan said.

“Further ‘variant risks’ and attendant rolling delays to tourism/travel resumption will continue to pose a clear and present threat to the THB,” he said, referring to new variants of Covid.

‘Very challenging’ to reopen to tourists

Thailand’s over-reliance on tourism is going to be “very challenging” for the country as it seeks to reopen up to tourists while still battling with the pandemic, Nomura’s Chief ASEAN Economist Euben Paracuelles said on Thursday.

The country’s attempts to reopen its tourism destinations have not gone well, he told CNBC.

In July, Thailand started a so-called “sandbox” pilot scheme in Phuket, where tourists can visit the holiday destination without quarantining. But just a week after it reopened, it recorded one case — a tourist from the United Arab Emirates. By the end of the first week, it had 27 new cases, according to the Associated Press.

“So to be able to open up, I think (it) will be a very big struggle and they have very ambitious targets, they want to fully reopen by October. I think that’s probably too ambitious, probably not going to happen,” Paracuelles said. “And because of Thailand’s over reliance on tourism, I think that’s where the drive and the recovery will be coming from the most.”

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CDC panel endorses third Pfizer doses for millions

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Lisa Wilson receives a shot of the Pfizer vaccine at a mobile COVID-19 vaccination site in Orlando, Florida.

Paul Hennessy | SOPA Images | LightRocket | Getty Images

A key Centers for Disease Control and Prevention advisory group voted Thursday to recommend distributing Pfizer and BioNTech‘s Covid-19 booster shots to older Americans, nursing home residents and other vulnerable Americans, clearing the way for the agency to give the final OK as early as this evening.

The agency’s Advisory Committee on Immunization Practices specifically unanimously endorsed giving third Pfizer shots to people 65 and older and nursing home residents in the first of four votes. The panel also recommended third shots for adults age 18 to 64 with underlying conditions.

The panel will also vote on whether to recommend the shots for adults who are more frequently exposed to the virus – possibly including people in nursing homes and prisons, teachers, front-line health employees and other essential workers.

The elderly were among the first groups to get the initial shots in December and January.

The vote is seen as mostly a win for President Joe Biden, whose administration has said it wants to give booster shots to all eligible Americans 16 and older as early as this week. While the CDC panel’s recommendation doesn’t give the Biden administration everything it wanted, boosters will still be on the way for millions of Americans.

The endorsement comes a day after the Food and Drug Administration granted emergency use authorization to administer third Pfizer shots to many Americans six months after they complete their first two doses. While the CDC’s panel’s recommendation isn’t binding, Director Dr. Rochelle Walensky is expected to accept the panel’s endorsement shortly.

Walensky addressed the committee Thursday before the vote, thanking them for their work and laying out what’s at stake.

“These data are not perfect, yet collectively they form a picture for us, and they are what we have in this moment to make a decision about the next stage in this pandemic,” she said.

Prior to the vote, some committee members said they worried that widely offering boosters could interfere with efforts to get the shots to the unvaccinated or potentially reduce confidence in the vaccines’ effectiveness. Others were frustrated that only Pfizer recipients would be eligible to get the shots, leaving out millions of Americans who got the Moderna and Johnson & Johnson vaccines.

The vote came at the end of a two-day meeting, where CDC advisors listened to several presentations on data to support the wide distribution of booster shots, including one presentation from a Pfizer executive who displayed data that showed a third shot appears to be safe and boost antibody levels in recipients.

During one presentation Thursday, CDC official Dr. Sara Oliver presented observational studies from Israel, where officials began inoculating the nation’s population ahead of many other countries and began offering third shots to their citizens in late July.

The Israel data has been criticized by at least one FDA official as so-called observational studies don’t adhere to the same standards as formal clinical trials.

“We can use the experience from Israel to inform our knowledge of the safety of boosters,” Oliver said, adding the country has only reported one case of a rare heart inflammation condition known as myocarditis out of nearly 3 million third doses administered.

CDC official Dr. Kathleen Dooling said data also suggests a third dose may reduce the risk of severe illness in older adults and people with comorbidities. Potential risks include myocarditis, although this risk is very rare, occurring mostly in males under 30, she said.

“The third dose of Pfizer-BioNTech Covid-19 vaccine appears to have similar reactogenicity as the second dose,” she added.

The topic of who should get boosters and when has been a contentious topic among the scientific community since the Biden administration outlined its plan to widely distribute boosters last month.

In a paper published days before an FDA advisory meeting last week, a leading group of scientists said available data showed vaccine protection against severe disease persists, even as the effectiveness against mild disease wanes over time. The authors, including two high-ranking FDA officials and multiple scientists from the World Health Organization, argued in the medical journal The Lancet that widely distributing booster shots to the general public is not appropriate at this time.

In outlining plans last month to start distributing boosters as early as this week, Biden administration officials cited three CDC studies that showed the vaccines’ protection against Covid diminished over several months. Senior health officials said at the time they worried protection against severe disease, hospitalization and death “could” diminish in the months ahead, especially among those who are at higher risk or were inoculated during the earlier phases of the vaccination rollout.

This is a developing story. Please check back for updates.

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NIH Director Collins calls Israeli data ‘impressive’

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A patient receives his booster dose of the Pfizer-BioNTech coronavirus (COVID-19) vaccine during an Oakland County Health Department vaccination clinic at the Southfield Pavilion on August 24, 2021 in Southfield, Michigan.

Emily Elconin | Getty Images

National Institutes of Health Director Dr. Francis Collins called Israel’s data on Covid-19 booster shots “impressive,” noting that they provided a tenfold reduction in infection for people who received a third dose.

Israel began administering boosters in late July to individuals over 60, giving scientists more time to examine their ability to combat Covid and bolster the waning effectiveness of the initial series of doses. Collins’ comments Thursday came just a day after the Food and Drug Administration approved Pfizer and BioNTech’s Covid booster for high-risk people, including anyone 65 and older.

“Without tipping my hand too much, I will say the data looks really impressive, that the boosters do in fact provide substantial reduction in infection,” Collins said during a discussion on Covid hosted by Bloomberg Philanthropies. “Like a tenfold reduction just within 12 days after that booster, and also a reduction in severe illness, which is the thing we’re most concerned about.”

Collins added that the Israeli data indicated a roughly twelvefold reduction in severe Covid as the nation was starting to experience more breakthrough cases. Pfizer reported on Aug. 25 that recipients of its third doses experienced a threefold increase in antibodies.

The CDC’s Advisory Committee on Immunization Practices, a panel of medical authorities who offer guidance to the agency, will vote Thursday on whether to endorse the FDA’s booster decision. The panel began a two-day series of presentations on boosters on Wednesday to give experts and the public a chance to hear more data before the final vote.

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Here’s what will happen when the Fed’s ‘tapering’ starts, and why you should care

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The Marriner S. Eccles Federal Reserve building in Washington.

Stefani Reynolds/Bloomberg via Getty Images

Likely before the end of the year, the Federal Reserve will start to tiptoe into the unknown.

Central bank officials indicated Wednesday that they’re ready to begin “tapering” – the process of slowly pulling back the stimulus they’ve provided during the pandemic.

While the Fed has gone into policy retreat before, it has never had to pull back from such a dramatically accommodative position. For most of the past year and a half, it has been buying at least $120 billion of bonds each month, providing unprecedented support to financial markets and the economy that it now will start to walk back.

The bond purchases have added more than $4 trillion to the Fed’s balance sheet, which now stands at $8.5 trillion, about $7 trillion of which is the assets bought up through the Fed’s quantitative easing programs, according to the central bank’s data. The purchases have helped keep interest rates low, provided support to markets that malfunctioned badly at the start of the pandemic crisis, and coincided with a powerful run for the stock market.

In light of the role the program has played, Fed Chairman Jerome Powell assured the public Wednesday that “policy will remain accommodative until we have reached” the central bank’s goals on employment and inflation.

Markets thus far have taken the news well, but the real test is ahead. Tapering represents a teeing up of future rate hikes, though they appear to be at least a year in the distance.

“It’s certainly been communicated well, so I don’t think that should be a shock to anybody or cause a disruption to the market,” said Kathy Jones, head of fixed income at Charles Schwab. “The question really is more around asset prices than [interest] rates. We have very high valuations across the board in asset prices. What does this shift away from very easy money do to asset prices?”

The answer so far has been … nothing. The market rallied Wednesday afternoon despite what amounted to a preannouncement for Fed tapering, and roared higher again Thursday.

How things go the rest of the way likely depends on how the Fed stage manages its exit from its money-printing operations.

How it works

Here’s what tapering could look like:

Powell said the official tapering decision could happen at the November meeting and the process would commence shortly thereafter. He added that he sees tapering being finished “sometime around the middle of next year.” That timeline, then, offers a view into how the actual reductions will go down.

If the taper indeed begins in December, reducing the purchases by $15 billion a month would get the process down to zero in eight months, or July.

Jones said she would expect the Fed to cut Treasurys by $10 billion a month and mortgage-backed securities by $5 billion. There have been some calls from within the Fed to be more aggressive with mortgages considering the inflated state of housing prices, but that seems unlikely.

Federal Reserve Chair Jerome Powell testifies during a U.S. House Oversight and Reform Select Subcommittee hearing on coronavirus crisis, on Capitol Hill in Washington, June 22, 2021.

Graeme Jennings | Pool | Reuters

Powell’s general tone during this post-meeting news conference surprised Jones. The chairman repeatedly said he is satisfied with the progress made toward full employment and price stability. With inflation running well above the Fed’s comfort zone, Powell said “that part of the test is achieved, in my view, and in the view of many others.”

“The tone was perhaps a little bit more hawkish than the market expected when it comes to tapering,” Schwab’s Jones said. “That comment that the Fed will finish by the middle of next year, it was like, ‘OK, we had better get a move on here if we’re going to do that.'”

Jones said that Powell’s comments and the Fed’s tapering intentions reflected a high level of confidence that the economy continues to recover from the pandemic-induced recession, which was both the shortest and steepest in U.S. history.

“The Fed is telling us that it collectively expects growth and inflation to be pretty strong over the next year, and they’re ready to withdraw the easy policy,” she added.

A view to a rate hike

What happens after the taper is what’s really important.

The summary of individual members’ rate forecasts – the vaunted “dot plot” – indicated a slightly more aggressive posture. The 18 members of the policymaking Federal Open Market Committee are about split on whether to enact the first quarter-point hike next year.

Officials see as many as three more hikes in 2023 and in 2024, bringing the Fed’s benchmark borrowing rate to a range between 1.75% and 2%, from its current 0 to 0.25%. Powell stressed the Fed will move carefully before raising rates and likely will wait until tapering is complete, but the market will be watching for more hawkish indications.

“The next Fed meeting could be really interesting. It should give us a lot more volatility than we’re seeing now,” said John Farawell, head trader with bond underwriter Roosevelt & Cross. “They did sound more hawkish. It’s going to be data-driven and going to be about how Covid plays out.”

For investors, it will be a new world in which the Fed is still providing support but not as much as before. While the mechanics sound simple things could get complicated if inflation continues to run above the Fed’s expectations.

FOMC members upped their 2021 core inflation estimate to 3.7%, increasing it from the 3% projection in June. But there’s plenty of reason to believe that there’s considerable upside to that forecast.

For instance, in recent days economic bellwether companies including General Mills and Federal Express have indicated that prices are likely to rise. Natural gas is up more than 80% this year and will mean substantially higher energy costs heading into the winter months.

UBS forecasts that economic conditions and the tapering news will start putting upward pressure on yields, driving the benchmark 10-year Treasury to 1.8% by the end of 2021. That’s about 40 basis points from its current level but “should not have a significant adverse effect on borrowing costs for companies or individuals,” UBS said in a note for clients.

Yields move opposite prices, meaning that investors will be selling bonds in anticipation of higher rates and less Fed support.

Analysts at UBS say investors should keep in mind that the Fed is moving forward because it is getting more confident in the economy, and still will be providing support.

“While higher bond yields lower the relative attractiveness of equities, a gradual rise in bond yields should be more than offset by the positive impact from rising earnings as economies return to normal,” the firm said. “Tapering should thus be seen as the gradual withdrawal of an emergency support measure as conditions normalize.”

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