SGD Monthly Snapshot – SG 51 Profits Are Never Enough
Economic Data in July
4 July
Jun PMI 49.6 vs 49.8 expected
Jun Electronics Sector Index 49.0 vs 49.1 previous
5 July
Jun Nikkei Singapore PMI 52.3 v 50.1 previous
7 July
Jun Foreign Reserves $248.86 bio vs $247.13 bio previous
14 July
2Q16 Adv GDP +2.2% YoY vs +2.2% expected
2Q16 Adv GDP +0.8% QoQ vs +0.9% expected
15 July
May Retail Sales +1.4% MoM vs +1.3% expected
May Retail Sales +3% YoY vs +1.9% expected
May Retail Sales ex Auto -3.3% vs -3.4% expected
18 July
Jun Non-oil Domestic Exports -2.3% YoY vs -3% expected
Jun Non-oil Domestic Exports -12.9% MoM vs -12.8% expected
Jun Electronics Exports -1.7% YoY vs -6% previous
25 July
Jun CPI +0.7% MoM vs +0.4% expected
Jun CPI -0.7% YoY vs -1.1% expected
Jun Core CPI+1.1% YoY vs +1.1% expected
26 July
Jun Industrial Production -0.3% YoY vs +0.5% expected
Jun Industrial Production -2.5% MoM vs -1.4% expected
28 July
2Q16 Unemployment Rate +2.1% vs +2.0% expected
The longest bond rally in 5 years extended another month even with a 20Y new bond auction thrown in and some crazy moves in the short end rates into the month end where we had the BoJ coming 24 hours after the FOMC and causing more volatility than acts of terrorism or natural disasters these days. Couple that with the largest local bond default by Swiber in the SGD market on the same day, the month of July would go down in the memory of traders and investors alike, as a month to remember or one Swiber bond holders would love to forget as others count their profits.
Short end O/N and T/N rates spiked above 1% according to market users who were stunned and stung by their funding cost looking at the 30 day chart of the O/N rates below.
1 month chart of SGD O/n Rates
Given we are near 12 mth lows in the SIBOR’s and the USDSGD, SOR remains stubbornly high for the flattest curve we have seen since the 2008 financial crisis where the 2Y vs 5Y differential was a mere 23 bp risk premium and the 2Y vs 10Y at 55 bp towards the end of July making the US’s ridiculed 88 bp in the 2-10Y look acceptable, roughly implying say 3.5 hikes after 2 years.
12 month chart of USDSGD, 1M and 3M SIBOR and 6M SOR
It could possibly be due to the smallest monthly loan growth number, at -2.7% yoy, we have seen since 1999.
20 year chart of Singapore Loan Growth YoY
Yet at the same time, YoY CPI is showing signs of less aggressive decline though, still in a protracted period of negative growth lasting 20 months.
Singapore CPI YoY, 1999-2016
As we said last month, the USDSGD would find 1.33 a tough level to break even as EM saw a record breaking month of inflows.
The combination of the flat yield curve, paying little premium for a new 20Y SGS and 3 consecutive SGD 700 mio HDB issues – in Jun, Jul and Aug (today), markets are quite full up on duration. Fears are building into October where MAS has not indicated if there will be another round of easing to address CPI chart above.
Singapore and Australia are still vying for the highest 10Y AAA yield in the world with the SGS underperforming into the RBA rate cut yesterday before their Australian counterpart bounced back on profit taking.
That is not to say that they will be the safe haven bonds of choice when the world re-prices the 10 trillion worth of negative yields out there.
Going ahead, the big picture remains for the SGD to follow in the stead of EM and Asian flows and as we pointed out, Asian problems have not gone away but are just on the back burner as global flows divert themselves from their monetary policy predicaments which explains our observation of the “stubbornly high” tell-tale SOR which is the hedge into the October MAS MPS. https://tradehaven.net/time-for-another-asian-crisis/
As for the bonds, it is a fine balance between duration balancing after the longest rally in 5 years, dwindling supply with a $7.7 bio maturity on the 1st of September but we have new HDB’s and we cannot say the long ends have a lot of upside left on such a flat curve. Profits have been huge but we know it is always never enough, just like Singaporean’s favourite local movie – Money No Enough.