Sorry for the back to back spammy market notes but I'm heading out to a SWIFT conference this morning in Bangkok, but I'm contactable by mobile and will be around for the London/New York hand over.
Singapore's economy is running on fumes
Singapore Q2 GDP -3.4% q/q vs +0.1% consensus, after +3.8% in Q1; +0.1% y/y in Q2 vs +1.1% consensus, after a revised +1.1% in Q1 (was +1.2%).
Singapore is the first major open market economy to report Q2 growth, and even despite the island nation being considered small in the big scheme of things, it will be no less closely watched by global central banks as well as investors since this print will be viewed as a critical barometer for the health of the worldwide economy.
In yet another casualty of the trade war, the second quarter GDP print barely registered on the scale coming in at a measly 0.1 % weighted down by the ongoing US-China trade war which is negatively impacting Singapore's key manufacturing and export sectors, and even construction fell large.
On the currency side of the equation look, we need to price in a full out dovish response from the MAS. And since carry trade continues to dominate the Asia currency landscape a more accommodative MAS will promote the use of the SGD as the local funding currency against a basket of regional high yielders ( INR-IDR -PHP and MYR)
And with the chase for yield likely to aggressively resume next week and Asia carry trade basket should do well.
With our key call on the dovish Fed pivot for USDMYR to test critical support at 4.10 next week looking solid.
One thing I forgot to add on my note, besides the shelf life of currency market moves of 20 hours before "mean reversion" set in in this low vol low-interest environment. But I think adding to the morning general currency market malaise is that traders are continuing to figure out what the possible effect of the Fed repo facility will have on the market. Unquestionably this will be a hugely positive boost to short term liquidity constraints that have affected US funding given the sheer weight of bond issues in float. But we remain in the dark trying to figure the timing, policy and mechanism.
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