SGD Monthly Snapshot : Buy In May And Burp In June
Economic Data In May
3 May Apr PMI 49.8 vs 49.5 expected
Apr Electronics Sector Index 49.5 vs 49.0 previous
5 May Nikkei Singapore PMI 49.4 vs 52.0 previous
9 May Apr Foreign Reserves $250.35 bio vs $246.54 bio previous
13 May Mar Retail Sales +5.1% YoY vs +3.6% expected
Mar Retail Sales -1.4% MoM vs -0.1% expected
Mar Retail Sales ex Auto -2.2% YoY vs -3.9% expected
17 May Apr Non-oil Domestic Exports -7.9% YoY vs -8.4% expected
Apr Non-oil Domestic Exports +4.5% MoM vs +4.4% expected
Apr Electronics Exports -7.4% YoY vs -5.8% expected
23 May Apr CPI -0.1% MoM vs +0.1% expected
Apr CPI -0.5% YoY vs -0.7% expected
Apr Core CPI +0.8% YoY vs +0.7% expected
25 May 1Q16 Final GDP +1.8% YoY vs +1.9% expected
1Q16 Final GDP +0.2% QoQ vs +0.6% expected
26 May Apr Industrial Production +4.8% MoM vs +1.6% expected
Apr Industrial Production +2.9% YoY vs -0.2% expected
April Snapshot
The SGD lost 2.4% against the USD for the month of May, blipping to a high of 1.3842 and the 5Y swaps and bond yields followed higher into a new 10Y SGS auction with S$2.5 billion issued, in a surprisingly “tail-less” 2.15% cut-off (within expectations) auction, a sign of superb market demand after poor performance for the month, continuing the sell off from March and underperforming the US treasury markets as the strong USD held USDSGD and the SOR fixings at a 2 month high.
Yet the last time we checked in April, we do not believe MAS mentioned anything about QE for Singapore but no one would have expected the record month of May we have seen in terms of bond issuance, a record breaking month with S$ 4.81655 billion issued in SGD dollar, higher than the previous record of S$ 4.66475 billion issued in Aug 2010. [for the record, May 2016 is also saw the global record for corp bond issuance break the previous monthly high of U$ 250 bio back in Nov 2012 with a whooping $ 262 bio issued globally]
It is somewhat puzzling that with nearly $2 billion worth of SGD to be swapped into USD, mostly in the 5 year sector, that interest rates (and basis swaps) managed to buck the trend and moved higher for the month, with the 5Y rate outperforming most of the curve, rising with the 2Y and flattening against the 10Y
The story for May should be all about bond supply – the S$ 4.83 bio of new corporate bonds to replace the $ 1 odd bio that matured in the month and we are looking at $ 12.4 bio for the year so far to replace the $ 7-odd bio that matured but probably not enough to cover the dismal loan growth numbers which can be optimistically described as slowing less than before (noting the blip to -0.8% last month).
Bond buyers can have the gratification that SIBOR rates have not followed bond yields and interest rates higher, the 1 month Sibor holding at near its 12 month lows since the correction after last month’s monetary policy meeting which is good for the extra S$ 5.2 bio of bonds in the market ($ 12.4 bio new issues vs $ 7.2 bio matured).
For the excitement that June holds, with worries of a Brexit, the FOMC, China’s inclusion into global stock indices in the MSCI’s annual review and of course, the UEFA Euro 2016, it is ultimately the half year mark for 2016, and window dressing into summertime and a politically charged June.
It is thus easier to visualize indigestion than pessimism going ahead as economic data continues to disappoint less, taking a quick glance across the economic surprise indicators, mostly improving which leaves the market vulnerably long bonds.
The currency picture has displayed a high degree of correlation with the interest rates for the past 3 months and that should start unraveling with the US rate hike to come. Given that US dollar longs are at their lowest in 2 years, we should not expect too much volatility in the absence of extreme positioning or surprise central bank moves.
We had a feast of bonds in May which just leaves us the option of burping in June.