Economic Data in August
2 Aug
Jul PMI 49.3 vs 49.5 expected
Jul Electronics Sector Index 49.7 vs 49.0 previous
3 Aug
Jul Nikkei Singapore PMI 50.7 v 52.3 previous
8 Aug
Jul Foreign Reserves $251.43 bio vs $248.86 bio previous
11 Aug
2Q16 Final GDP +2.1% YoY vs +2.2% expected
2Q16 Final GDP +0.3% QoQ vs +0.8% expected
15 Aug
Jun Retail Sales -1.5% MoM vs +0.7% expected
Jun Retail Sales +0.9% YoY vs +2% expected
Jun Retail Sales ex Auto -3% vs -1.3% expected
17 Aug
Jul Non-oil Domestic Exports -10.6% YoY vs -2.5% expected
Jul Non-oil Domestic Exports -1.8% MoM vs -0.3% expected
Jul Electronics Exports -12.9% YoY vs -4.3% expected
23 Aug
Jul CPI -0.3% MoM vs +0.1% expected
Jul CPI -0.7% YoY vs -0.5% expected
Jul Core CPI+1% YoY vs +1% expected
26 Aug
Jul Industrial Production -3.6% YoY vs +0.8% expected
Jul Industrial Production -4% MoM vs +0.3% expected
A compelling rally after the 20Y bond issuance in July, being the last long maturity SGS for the year, over-did itself as 30Y SGS yields made a new historic low of 2.11% mid month as Singapore won their first Olympic goal after the SG51 celebration before the month ended on a low note with the passing of popular former president Nathan.
The 30Y bond does deserve to be the crowned the best “Quick Buck” bond on record, currently returning 14%, less than 6 months from issuance as price woes continue to bite local corporate bond investors.
Price chart of the 30 year SGS since its issuance end Feb this year.
And thus we had a “screwed up” month for bond investors, favouring the conservatives and punishing the yield hungry as some local corporate bonds saw their price collapse by 20-80%.
The month of August was also “screwed-up” by the SGD 7.7 bio SGS maturity on 1 Sept which was replaced by only SGD 2.2 bio (200 mio going to MAS) of a new 2Y reopening that has been attributed to the massive selling in the SGD forwards – swapping the SGD into USD that is seeing global scarcity these days ahead of the US Money Market fund reforms set to hit the world in Oct.
Thus the “screw up” in the SGS, with demand going into the 2-5Y sector for yields to plunge 15 bp on average as the long end SGS followed the global rally to price higher.
Like we said 2 months ago, the USDSGD based at 1.33 for the year although it had a lot of help from Jackson Hole and for most of August, it was easier to ignore economic data or anything and just focus on the big EM picture and the FOMC.
The EM picture is starting to look a little weary with inflows, whilst still positive, slowing to its weakest in 9 weeks. This is just in time for the rounded bottom in the weekly USDSGD chart that months ago that now makes 1.38 the next target.
A “loose screw” in the “screwed up” picture is the unnerving race for USD in the fwds market that can be the only cause for the collapse in the SGD fwd pts besides the SGD 7.7 bio of bond maturity that is chasing for USD, along with 2 local banks rushing for USD capital issues.
The significance is that the 6mth SGD fwd points have not seen negative territory in nearly 2 years which is the unnerving aspect because the USDSGD should really be higher if the demand for USD exists and we have the SGD still priced above the mid point of the NEER.
It is all well to blame the US money market fund reforms and the collateral requirement reforms for the derivative markets which Singapore has just delayed in an announcement on 22 Aug.
And we also had the MAS overturn their stiff TDSR ruling on 1 Sept to give certain borrowers some breathing room in their debt servicing ratios. Link : http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/TDSR-Rules-on-Refinancing-Fine-Tuned.aspx
We can safely ignore economic data for a while now that we have the new “loose screw” in the Zika viral outbreak that is not causing too much panic as yet unlike the more fatal SARS episode from 13 years ago.
Along with the SG National Day rally speech, we can safely assume that the economy will not be spectacular for a while as inflation will remain benign and the MAS should not be in a hurry to ease or hike for the obvious reason that it would not make much difference.
Let’s leave the market forces to play in September which promises to be a testy time with the Formula One grand prix race and its biggest challenger in Zika. It will be a testy time for banks as corporate bond maturities beckon and we have more than a handful of local corporates due to repay their bond principals and so far, we have had Perisai Petroleum, Ausgroup and Pacific Andes having bond holder meetings as the media and the authorities lambast the banks.
Curve steepening could see a come back and the 2-5-10 year spread looks supported. Bonds head into 3rd quarter end and the window dressing period that could prove to be a “screwed up” affair as a local dealer informs me, what is the point of having negative overnight or zero 1 week rates when the rates are not accessible to the world at large and repo rates are trading way above the cash rate because that is where the rest of the market is transacting their business.
Screwed up ?