SGD Monthly Snapshot : No Appreciation for Zero Appreciation

Our new SGD fx and rates column we hope readers will find useful.

Economic Data In April

31 Mar  Money Supply M1 (Feb) YoY -2.1% vs previous -0.6%
               Money Supply M2 (Feb) YoY 1% vs previous 1.1%

4 Apr      Mar PMI 49.4 vs 48.9 expected
               Electronics Sector Index 49.0 vs previous 48.2
               Nikkei Singapore PMI 52.0 vs previous 51.6

14 Apr   1Q Act GDP YoY 1.8% vs 1.7% expected
               1Q Act GDP QoQ 0% vs 0% expected

15 Apr   Feb Retail Sales MoM 1.7% vs 0.2% expected
               Feb Retail Sales YoY -3.2% vs 3.4% expected
               Feb Retail Sales ex Auto YoY -9.6% vs -1.5% expected

18 Apr   Mar Non-oil Domestic Exports YoY -15.6% vs -12.3% expected
               Mar Electronics Exports YoY -9.1% vs -1.5% expected

25 Apr   Mar CPI MoM 0% vs 0.1% expected
               Mar CPI YoY -1% vs -1% expected
               Mar CPI Core YoY 0.6% vs 0.6% expected

26 Apr   Mar Industrial Prod MoM 1% vs 0.3% expected
               Mar Industrial Prod YoY -0.5% vs -2% expected

28 Apr   1Q Unemployment 1.9% vs 2% expected

29 Apr Mar Bank Loans and Advances -1.7% vs previous -1.2%


Not exactly a rosy picture which gave MAS a good enough reason for their decision on 14 April to adopt a neutral monetary policy of zero currency appreciation, a first since 2009.

SGD Monthly Snapshot : Sometimes It Snows In April

And the market reaction ?

A picture paints a thousand words – No Appreciation for Zero Appreciation ?

SGD Monthly Snapshot : Sometimes It Snows In April 1

Perhaps it is due to the market’s positioning or perhaps the expectation that, with higher oil prices, inflation will resume growing in a couple of months and the Zero appreciation will be overturned and it is time to start positioning for that ?

Government Bonds And Swaps

Bond yields and interest rates are higher on the month after a fierce first quarter rally that saw EM local currency bonds outperform the rest of the world.

SGD Monthly Snapshot : Sometimes It Snows In April 2


Noting that the interest rate swaps have largely mirrored the rise in 6M SOR, monetary conditions have actually remained overeasy with overnight rates closing the month near the zero mark, giving SIBOR rates a definite nudge lower to a 6 month low.

SGD Monthly Snapshot : Sometimes It Snows In April 3


From the chart, it does look like the 3M SOR may hav some catching up to do with the Sibor which is unlikely to go anywhere if the USDSGD sticks in its current range, with 1.34 not giving up its support backed up by the new zero appreciation regime and basis swaps showing signs of support bids, perhaps zero appreciation is not so ineffectual yet ?

Deciphering interest rates with the help of USDSGD would be logical, observing that the 5Y irs has a higher degree of correlation with the SGD than even the underlying 6M Sor.

Yet there is a possibility that bond yields may diverge in the days ahead despite a similar correlation with the SGD dollar, given that the mega maturity of SGD 7.3 bio on 1 April has not yet been all replaced and with the long end 30Y reveling in its own world, swimming in profits since its auction at end of Jan, netting 7% in total returns since; there could be demand for shorter tenor bonds, at this rate.

The crack lines would be in the long end for May with a new 10Y bond auction for the typical SGD 2-2.5 bio benchmark size and long end SGS yields now looking fairly unattractive versus US treasuries (SGS 10Y 1.97% vs UST 1.83% compared to 31 Dec SGS 10Y 2.6% vs UST 2.27%), Australian govt bonds etc, with the exception of amazing Thailand.

For the lack of supply on the corporate bond front as well, there was a mad scramble for bonds in April where we saw a major maturity of SGD 1 bio Maybank papers that went un-replaced, along with SGD 1.1 bio of HDB papers in March, making it possible to imagine that the April sell off of SGS could have been more severe, if not for the slack in the corporate bond market.

In Jan, we said “3 month SOR towering 1% over 3 month US Libor makes no excuse for the rate hikes to come from the US… it would be hard to expect the short end liquidity squeeze to continue, if not reporters start reading this and wake up to the 0.4% (overnight rate) vs the 3M SOR 1.7% spread to alert disgruntled mortgagees.. Singapore stands out, oddly, as one of the last remaining 2% sovereign bond market in the developed world… USDSGD shall go with the crowd in the crowded USD trade and for that reason, I believe that the USD will not enjoy a smooth 5th year of appreciation which I will talk about soon. I suppose it is buy on rumour and sell onf fact, buy USD when you expect hikes but borrow USD when they start hiking. Singapore rates to outperform the US ?”

With everything hinging on the EM(China) story, the USD(Donald Trump) story, the oil story, credit default stories and with supply looking quite lop-sided in the local currency market, there are quite a few “if’s” to worry about when reflecting on April.

It would be an “if-fy” May, if you ask me and while the risks are skewed towards a risk-off start, it could be time for all those zero appreciation and negative rate policies to start working.