SGD Weekly : Scratch Your Head And Miss The Boat

After the electrifying elections (where I did warn was not going to be as bad as markets thought it would be), it is official – Singapore would contend to be the worst performing AAA country in the world this year showing up red across the board, from currency to equities to bonds and interest rates.

Here I compiled a list of countries with at least a AAA rating from one of the agencies, noting that there are only 9 pure “AAA” countries in the actual club (with triple A’s from all 3 agencies) which Singapore belongs to.

 

Notwithstanding that the SGD dollar has rebounded in strength against her peer NEER group over the past 2 trading sessions, dropping from -1.3% to -0.5% today against the mid, it would be natural to be severely perplexed by 6 year highs that SIBOR has notched in the past 2 days as well when Libor is fixing only at its 12-24 month highs. Thus we have the SIBOR-LIBOR spread at a historic high for those who are fascinated by numbers.

 

US Libor
1M 0.20655
3M 0.3372
6M 0.5407

SG Economic Data

2 Sep
AUG Purchasing Managers Index 49.3 versus expected 49.4 (previous 49.7)
AUG Electronics Sector Index 49.0 versus expected 49.0 (previous 49.5)
AUG Nikkei Singapore PMI 50.8 (previous 50.8)

7 Sep
AUG Foreign Reserves S$ 250.41 bio versus previous S$ 250.12 bio

15 Sep
JUL Retail Sales -2.2% MoM versus expected -1.0%
JUL Retail Sales +5.2% YoY versus expected 5.9%
JUL Retail Sales Ex Auto +0.8% YoY

 

It would seem to me that my “over reaction” call is not due to the elections afterall  and that markets are gunning for the Oct MPS with the expectation that MAS would weaken the SGD. The alternative would be that markets are sticking to their guns, and turning the FX policy against itself for we have not seen as an extended drop in CPI in some time.

So what is to blame ?

It is all about the currency ! or rather, the sentiments on the currency which is all about inflation with no strong signs of growth to come.

I still stick to my OVER REACTION call and that the SGD strengthening in the past 2 days is a sure sign of it. Some say the rise in Sibor is due to the Singapore Savings Bonds which is quite incredible because of its small issue size. I personally believe it is the banks milking their loan fixings for as long as they can although the SOR fixings have gone a little off the charts, giving Singapore a huge buffer against US rate rises as they come, if they come.

This is a good time to lock in those yields, with the 10Y at 2.87%, a 6 year high, and price down 4% from its auction back in May this year and a long way up from 6 months ago.

 

With LTA issuing a 15 year at 3.51% shortly after their 12 year at 3.09%, it is clear that the market is looking to lock in some yield at the right price.

The stock market ? Morgan Stanley echoes my view. Over done ?

Singapore Stocks Priced for Crisis-Like Scenario: Morgan Stanley

As for the USDSGD, I stick with my call from 2 weeks ago, in lieu of an FOMC hike this Thursday.

“While reports are screaming that we should be worrying about that 1.45 for the USDSGD, we appear to have hit a level of resistance at 1.4150-1.42…..To break that level, we would need to see further capitulation in risk and today is a good test as we had US equities close their worst month since 2012.” https://tradehaven.net/sgd-bumper-election-issue-lucky-singapore-savers/

The FX policy has now become the Achilles heel after delivering years of phenomenal returns because it just allows speculators to “over-do” it both ways (weakening has not been tested before). But it does not mean we should abandon all reason to miss the boat.

Good luck !

 

More reading on the FX policy : https://tradehaven.net/forex-lesson-3-explaining-singapores-managed-fx-policy-system/