x
Visit our new Mobile Website next time you access NetDania with your mobile device
Netdania News
FxWirePro: SGD FX and Rates Trades on Singapore Q2 GDP Prints and MAS Easing Risks

Source FxWire Pro Tuesday, 13 Aug, 2019 15:08:56 GMT
Back

Singapore’s final Q2’GDP report released this morning was unchanged from the advance report of just 0.1% yoy. The contraction in the manufacturing sector was revised -3.1% yoy vs -3.8% previously but this was offset by weaker numbers for services and the construction sector. This implies just 0.6% growth in H1’2019 and the big picture is that the government downgraded the outlook for this year for the second time to just 0-1% vs 1.5-2.5% previously. It expects growth to be around the mid-point of this range, around 0.5% which implies -0.6% to 1.4% growth in H2’2019. We could see another quarterly contraction in Q3 following -3.3% QoQ annualized in Q2. This will imply a technical recession and first since 2008. 

The downturn is unlikely to be as severe as in 2008 when growth contracted nearly 8% yoy in Q1’2009 but at the same time, the rebound is also unlikely to be robust. The outlook is challenging even into 2020 given the continued correction in the electronics sector, lingering trade tensions, and the uncertain regional outlook.

MAS easing risks have risen noticeably in recent weeks. A simple comparison of where macro variables sit now compared to previous easing cycles shows the hurdle to shift policy at the October meeting is arguably not that high to clear.

Short SGD NEER trade and pay SGD-USD spread:

From an FX standpoint, we have been reluctant to play SGD from the short side in 2019, given Singapore’s strong external balances and safe-haven characteristics. However, with MAS easing risks rising our bias has shifted.

Markets have started to price this in but we would stress that the reaction in both the SGD NEER and USD/SGD to date is still well short of what we have typically seen in previous cycles.

Our preferred expression is to be short SGD via the NEER. The risk/reward around short SGD NEER positions has certainly improved compared to 3-4 months ago when the risks for easier policy were more geared towards 2020 rather than this year.

Applying “interest rate parity” and considering the various caveats remains our preferred framework to analyze SGD interest rates. This is because over the medium term, turns in MAS policy have reliably and consistently explained the turning points in SGD interest rate versus trading partner interest rates.

Under such a framework, a reduction in the slope of S$NEER appreciation to 0.5% per year because of a lower 2020 core inflation forecast, is supportive for SGD interest rates to underperform USD rates.

The observation that SGD points/SGD-USD IRS spread has already moved north YTD is not an oddity as “markets moving in advance of a central bank” has always been the case in Singapore.

Strategy: In FX, we enter into a short SGD NEER trade, with an entry-level of 127.05 based off the JPM S$NEER estimate. The carry for the NEER is around flat and we target a move back to slightly below the mid-point of the band in the next 3 months. We currently are +113bp above the mid-point of the band. In rates, we look to pay the SGD-USD spread, either through front-end, SGD-USD IRS spread or 6x12 SGD forward points, on dips. Courtesy: JPM

Source: FxWire Pro
© FxWire Pro 2019. All rights reserved. The FxWire Pro content received through this service is the intellectual property of FxWire Pro or its third party suppliers. Republication or redistribution of content provided by FxWire Pro is expressly prohibited without the prior written consent of FxWire Pro, except for personal and non-commercial use. Neither FxWire Pro nor its third party suppliers shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance thereon.
Find a Top Broker
Global
Forex
26108.90
200.45
0.77%
2919.42
28.4
0.98%
7701.90
98.9
1.30%
10716.37
409.59
3.97%
11700.77
141.12
1.22%
20639.50
55
0.27%
2883.10
59.28
2.10%
7191.85
67.05
0.94%
26237.00
565
2.20%
6480.70
35.6
0.55%
11053.90
6.1
0.06%
1501.30
-10.19
-0.67%
59.25
0.72
1.23%
1.10985
0.00092
0.08%
106.502
0.188
0.18%
1.21224
-0.00204
-0.17%
0.67761
0.00013
0.02%
1.32825
0.00243
0.18%
118.20200
0.434
0.37%
0.91552
0.00349
0.38%
129.10500
-0.034
-0.03%
0.98038
0.00306
0.31%
1.08807
0.0036
0.33%
0.64216
0.00041
0.06%
98.20100
0.059
0.06%
Top Gainers
Name
Last
+/-
%
1.03
0.29
39.70%
1.23
0.32
35.16%
5.16
1.33
34.73%
2.65
0.56
26.66%
3.51
0.58
19.74%
3.14
0.62
24.90%
1.13
0.18
18.95%
22.70
3.61
18.91%
5.41
0.80
17.38%
4.23
0.61
16.78%
Top Losers
Name
Last
+/-
%
0.00
0.00
-57.63%
1.30
-0.45
-25.71%
10.94
-3.50
-24.24%
0.90
-0.15
-14.20%
0.11
-0.02
-14.16%
4.07
-0.67
-14.14%
0.70
-0.11
-13.59%
8.93
-1.27
-12.43%
15.57
-2.17
-12.23%
1.06
-0.14
-11.67%
NetDania does not guarantee the accuracy of data contained on this website, nor do we guarantee that data is real-time. Data on this website may be provided from OTC market sources and market makers, and not necessarily from exchanges. The provided price data is indicative and may not be appropriate for trading or decision making purposes. NetDania does not assume any responsibility for any losses incurred from the use of the provided data.
NetDania does not endorse or promote any broker or financial service. NetDania is a pure technology provider offering its software with broker integration. Any user of NetDania software must be an existing client of one of our supported brokers. NetDania showcases NetDania technology for the purpose of demonstrating it towards brokers and other institutions looking to white label the technology on a software subscription contract. No financial services are offered, promoted or recommended. NetDania is compensated as a technology provider by its institutional clients including its integrated brokers. It is the sole responsibility of any recipient employing or requesting an offering to comply with all applicable legislation or regulation affecting it.

Persons or entities including approved brokers not belonging to the NetDania Group may advertise on the NetDania and its Group’s websites, through links, banners or otherwise. We have not taken any steps to verify the accuracy, quality or reliability of any products, information or services provided by third parties that have links on our website. We accordingly provide no warranties with regard to and disclaim responsibility for any such products, information or services and exclude all liability in this regard to the fullest extent permitted by relevant laws and regulations. If a user of the NetDania Group’s websites decides to act upon any such advertising, such user does so entirely at its own risk.

NetDania’s website may be accessed worldwide. The Information provided on its website is however only intended for use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. None of the offerings services referred to on this website are available to recipients residing in countries where the provision of such offerings would constitute a violation of mandatory applicable legislation or regulations. It is the sole responsibility of any recipient employing or requesting an offering to comply with all applicable legislation or regulation.

HIGH RISK INVESTMENT WARNING:
End-users of the NetDania software that make use of the trading integration features as direct clients of integrated brokers, should be aware of the level of risk carried by trading in financial markets. Trading foreign exchange and or other financial instruments on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or more of your initial investment, and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading, and seek advice from your broker and or an independent financial advisor if you have any doubts. Anyone opening a live trading account needs to adhere to the laws of their local country as such laws may differ from country to country.
NetDania expressly disclaims any liability for any lost principal or profits which without limitation may arise directly or indirectly from the use of or reliance on information on our website or the use of our software with broker integration.
Copyright © 1998 -2019 NetDania Creations ApS, Kronprinsessegade 36, 1st floor DK-1306 Copenhagen K, Denmark, +4536980409, Contact NetDania by email, CVR-nr.27976670 Terms And Conditions and Privacy Policy