Singapore’s Q3 GDP disappoints, monetary policy unchanged

Singapore’s Q3 GDP (advance estimate) surprised on the downside at 0.6% YoY and -4.1% QoQ SAAR, against the market consensus of 1.7% YoY and a neutral QoQ growth rate.

Source: Bloomberg

This is a sharp drop from the revised 2.0% YoY and 0.2% QoQ SAAR growth in the second quarter and is below the 2016 estimate of 1.8% YoY according to the Monetary Authority of Singapore’s (MAS) September survey. The MAS had also kept its monetary policy unchanged though this was largely within the market’s expectation.

USD/SGD saw sharp swings of about 70 pips following the announcement but ended the episode higher at about 1.3850 levels, up from 1.3820 levels ahead of the announcements. The rally in USD/SGD was in reaction to the weaker-than-expected Q3 growth rate. A zoom-in to sectoral contributions sees the manufacturing sector returning to contractionary territory at -1.1% YoY after the brief bout of optimism in Q2. While the construction sector’s growth rate had held relatively steady at 2.5% YoY, the key highlight had been the plunge of services producing industries to -0.1% YoY. The services sector, which contributes to about two-thirds of total GDP, had not seen a decline since Q3 2009. As such, it is no surprise that the net reaction of the market is SGD-negative.

On monetary policy, though the general consensus had been for a no-change to the policy band, there remains jitters within the market that a surprise may occur as with the previous meeting in April. This likely explains the brief spike of the USD/SGD following the announcement as traders heaved a sigh of relief. The central bank justified the move with the need to maintain medium-term price stability. Although there remains further room for easing, the MAS is likely to have kept its ammunition for a worse turn of events. Moving forward, a repeat of the build-up of anxiety ahead of Q3 2015’s GDP release may recur. The market will closely watch to see if a technical recession may set in, although improving PMI data lately could counter some of this pessimism.


Asia ahead

Meanwhile a reversal of trend was seen in dollar and oil prices. Despite reports coming from the Energy Information Administration (EIA) showing that stockpiles rose for the first time since August by 4.9 million for the week ending October 7, WTI prices picked up to trade firmly above US$50/bbl. This is likely attributed to the details on gasoline and distillate inventories, where a sharp drop has been registered instead. The dollar meanwhile pared gains on Thursday, weighed also by Philadelphia Fed President Patrick Harker who sounded off a dovish note.

The day ahead will be clouded by several pieces of information including China data, US banks earnings report and Fed officials on the wires.

Yesterday: S&P 500 -0.31%; DJIA -0.25%; DAX -1.04%; FTSE -0.66%

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