FXStreet (Bali) – Nomura Research analysts perceive the disappointing Singapore Q2 GDP as an opportunity to be short S$NEER, trading S$NEER in the +/-1% policy band with a bias for S$NEER to be on the weak side.
Key Quotes
“The government’s advance estimates show that GDP growth slowed in Q2 to 1.7% y-o-y from a revised 2.8% in Q1 (from 2.6%), missing expectations (Consensus: 2.4%, Nomura: 2.1%). This implies a sharp sequential contraction of 4.6% q-o-q saar in Q2, reversing the 4.2% expansion in Q1.”
“Although we are maintaining our full-year 2015 GDP forecast of 2.7%, we believe the Q2 print increases the downside risks. Advance estimates may yet be revised up once the June data are taken into account (which may show some improvement, partly boosted by the Southeast Asian Games held in Singapore).”
“We continue to expect better growth in H2 as US demand improves and sequential growth solidifies in China. This could better allow firms to pass rising wage pressures on to consumer prices.”
“Against this backdrop, we maintain our base case in which the Monetary Authority of Singapore (MAS) keeps its policy stance at the next policy announcement.”
“The weaker-than-expected GDP release raises the risk of a policy shift in October. This is not our base case, but with core inflation below the target range, a weaker property market and bank lending, the GDP release could increase market expectations for easing.”
“This supports our recommendation to be short S$NEER, which we implemented as a hedge against global risks, but also because of some earlier deterioration in local economic data. That said, given our belief that MAS remains optimistic on the growth and inflation trend outlook, our bias remains to trade S$NEER in the +/-1% policy band with a bias for S$NEER to be on the weak side (spot S$NEER last at -0.05%, 8:30am SGT.”
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