Singapore Weekly : Ripley’s Believe It Or Not ?

Believe it or not, we are nearly haze free.

Narrowly missing out on a technical recession, GDP grew 0.1% QoQ in 3Q15 although we shall know the truth next month between 18-25 Nov when the final figures will be released and the idea that sometimes it is nicer to know that we have lived through a recession without knowing we were in one is not so bad much like 2Q11 when all the bad numbers were contained in the revision from -0.9% to -6.3% leaving 3Q11 to be revised from +3.3% to +1.5%.

0.1% or 0% or -0.1% ? What does it matter ?

Thus the decision to keep the SGD on the modest and gradual appreciation road with a slight reduction in the slope of its appreciation, a relatively benign outcome, averting market panic like the one we witnessed in January when they threw in the towel.

Singapore Weekly : Believe It Or Not ?

The new slope is anyone’s guess although market is gravitating to a common agreement of 0.5% i.e. 0.25% semi annually which led to the SGD appreciating 0.75% against the USD for the week, naturally, and 1.6% against the IDR and nearly 2% against the MYR. The low was 1.3728 and high of 1.4048 is much lower than the 6 year highs of 1.4366 of early October which gives comfort that the range will be contained for the time being as 3M Sibor dropped the most since 2008 to fix at 1.00906% yesterday but remains above the 3M SOR at 0.94709%.

Sibor rarely exceeds SOR given the opportunity for arbitrage by parties who would stripe out the cost of funds from the forwards which suggests that the SOR move is either temporary i.e. led by the sharp drop in the spot USDSGD or that Sibor could be in for a steep decline in the medium term should emerging markets continue to calm down.

Singapore Weekly : Believe It Or Not ? 1

Massive moves in the bond market which continue to close the gap on rest of the world after the 10Y SGS – UST bond spread widened to an unprecedented (since 1998) 0.78% and SGS are comfortably below Australian yields again as Singapore yields settle to the middle of their 2015 trading range, recovering some of their losses for the year that is possibly due to the lack of bond supply for the rest of the year (the mini bond auction for Nov has been cancelled). The market awaits the announcement of the 2016 auction calendar which is anticipated to be market friendly (less supply) and expectations are for SGS to continue to remain supported with lower yields in the days ahead.

Risk reversals in the 1M USDSGD has collapsed of late although the medium term picture remains somewhat supported like we have anticipated in the 1.38 to 1.45 call we made last week.

Good luck !