SINGAPORE RATES WEEKLY : BEING POLITICALLY CORRECT AND CAUTIOUSLY OPTIMISTIC

US LIBOR
1M 0.1866
3M 0.28175
6M 0.4464

ECONOMIC NEWS AND DATA

MAY Industrial Production +2.4% MoM, expected +1.8%
MAY Industrial Production -2.3% YoY, expected -2.6%
May Bank Loans and Advances -0.1% YoY

It is slowing even if our dear economists have to keep sounding optimistic daily in the papers with their outlooks. For it is true, pessimism does not exist in politically correct Singapore.

Loan growth at its lowest pace since 2009 which is not surprising with rates trending higher and corporates probably unprepared in their budgets for the interest payments. Yet, it depends on how you look at it because Bloomberg reworded it to a more optimistic sounding “Singapore Banks’ Loans Grow In May for First Time This Year”.

 

Not to worry because the authorities will be hazing out interest rate transparency going ahead so the public will have less access to information and less cause for worry, notwithstanding that Singaporeans will still have free access to Libor rates if they are interested.

 

My opinion is that it will not be good for business and bond trading volumes have slowed substantially in the past months as interest wanes.

Like I said last week, I was not bullish on bonds and the 5 year SGS bond auction last Friday was poorly received indeed, with a surprisingly long tail that cut off at 2.03% when 1.9-1.95% was expected. The bond is trading about 20 cts higher at 100.10 (1.98%) now (auction price 99.858).

Yields are higher on the week even though the IRS is not moving as much due to the SOR fixings that remain capped as USDSGD holds to mid NEER.

And the USDSGD did hit my target of 1.35 of last week, sometime yesterday morning, still holding to mid NEER as the regional sentiments deteriorate with China and Greece.

SGDMYR saw yet another historic high this morning at 2.8104 and I suspect the USDSGD shall be dragged along for the ride.

For this week, I would be neutral on the USDSGD given the digital outcome of the Greferendum this Sunday that will be played against the US Non Farm Payrolls this Friday.

Positionings suggest that the USDSGD could retrace from here or hang around the 1.35 level.

As for bonds, I would expect cautious bids to emerge after today’s half year closing as it would be nice to open the second half with a profit but I would not be hopeful for a sustained rally going forward with loan growth and money supply trending down and thus, dragging inflation lower with it (lower inflation in Spore = higher interest rates).

We should expect some stimulus at this stage as regional authorities unveil their economic stimulus measures and as we head to SG50 celebrations. So far we have the Singapore MoF publishing a consultation draft Income Tax Amendment Bill which includes the following.

a) extending the merger-and-acquisition scheme for five years, until March 31, 2020;

b) introducing a new international growth scheme to provide larger Singaporean companies conducting international activities a concessionary tax rate of 10% for five years, until March 31, 2020;

c) improving the double tax deduction for internationalization schemes to cover eligible manpower expenses incurred for Singaporeans posted to new overseas entities;

d) enhancing the progressive personal income tax rate structure by increasing the marginal tax rates for resident individual taxpayers with taxable income exceeding $160,000 (US$118,583) and introducing a new 22% tax rate with effect from 2017;

e) extending the 205% tax deduction for qualifying donations for three years;

f) exempting withdrawals from a supplementary retirement scheme from tax; and

g) aligning the personal income tax rate for individual non-tax-residents with the new top marginal tax rate of 22% for individual tax residents.

Being Singaporean is being cautious optimistic which is being politically correct.