SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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By Macro Hive

 

SGX Asia Currencies Insights

<ul>
<li>CNH has traded well against most currencies, and flows remain strong. Therefore, recent USD/CNH rise will likely be temporary.</li>
	<li>The bullish INR story has been derailed by a worsening COVID picture and a dovish RBI. We expect near-term weakness.</li>
	<li>Korea economic data and equity flows have picked up which supports KRW</li>
	<li>Recent tech bounce supports TWD</li>
	<li>S$NEER is trading above MAS’s mid-point target. Thus suggests SGD has limited gains against USD in near-term</li>
</ul>
 

SGX Commodities Insights (Iron Ore)

<ul>
<li>Industrial commodity prices consolidating at high levels.</li>
	<li>Strong steel demand and margins remain supportive for ore.</li>
	<li>The Suez situation may have briefly boosted shipping rates.</li>
	<li>Traditional macro factors likely to dominate going forward.</li>
</ul>
 

China Growth Tracker

<ul>
<li>Iron ore prices have bounced by 6% over the past two weeks and the annual growth rate has picked up. Meanwhile, oil and copper prices have fallen.</li>
	<li>Elsewhere, Chinese bond yields have risen. Taking all these indicators together suggests robust Chinese growth, though the picture is less bullish than before.</li>
	<li>In our last report, we had favoured buying iron ore (SCOK1) and selling copper (LPK21). This trade has worked well with large gains in iron ore and a small decline in copper prices. There is scope for further iron ore gains, so we maintain these trades.</li>
</ul>
 

SGX Asia Currencies Insights

Spotlight View #1: CNH Strength 

The Chinese yuan (CNH) has made small gains against the dollar (USD) since the start of the month. This follows CNH weakness over March. While the USD/CNH trend was more mixed in recent months, the Chinese yuan trade-weighted basket (CFETS basket) has broadly been trending up (Chart 1). This suggests that broader CNH fundamentals are positive, but the dollar has outperformed lately. However, we expect the bulk of the USD/CNH rally to be behind us.

Looking at CNH crosses, CNH has trended up against its major trade partners’ currencies like the EUR and JPY (Chart 2). This broad CNH strength likely reflects a robust economy as exhibited by recent high-than-expected services PMIs (56.3 for March versus 52 expected) and negligible COVID cases. Chinese FX settlement data also imply significant FX inflows (Chart 3).
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One question for CNH is whether the authorities’ discomfort with excessive credit growth will lead to currency strength or weakness. Historically, the relationship between credit and the currency has been mixed. Certainly, the authorities’ desire to stimulate domestic consumption would suggest a stronger CNH – however, exporters may need a weaker currency to soften the impact of deleveraging. Chinese 10-year yields have recently stabilised after falling, and this has coincided with CNH strength (Chart 4).

The other question is whether broader USD strength will continue. Rate differentials suggest dollar strength or stability depending on tenor. Meanwhile, upgrades to US growth expectations appear to have stalled after significantly moving up over February and early March.

Together, these factors suggest that the bulk of the rise in USD/CNH is likely behind us. Indeed, during the 15-month downtrend of USD/CNH starting in early 2017, the currency saw several counter-trend rallies of 1.5% to 2.5%. We could be seeing similar dynamics today – USD/CNH has been trending down for 10 months, and the latest bout of USD/CNH strength could be a correction within a longer downtrend. We therefore continue to favour USD/CNH downside.
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Spotlight View #2: INR to Struggle   

The Indian rupee (INR) tumbled in recent weeks thanks to an acceleration in COVID cases and a dovish RBI. INR has relinquished all gains for the year and returned to levels last seen in November 2020. Until the domestic backdrop improves, we could see further INR weakness, with SGX INR/USD futures possibly reaching 133.3 or even 131.6 (USD/INR at 75 or even 76).

India has now joined Brazil as the main focal points for COVID. Brazil suffers from a rising death rate from COVID, while India now experiences a higher daily COVID case count than during its first wave in summer 2020. Daily cases recently exceeded 100,000 a day (Chart 5). The reproduction rate (R0) is estimated at almost 1.5 – the highest among developed and major developing economies.

Meanwhile, India’s vaccination has quickened, with almost 5 million daily shots recently administered. However, with only two approved vaccines – AstraZeneca’s (locally branded as Covishield) and domestically developed Covaxin (Bharat Biotech) – vaccine supply is falling behind the rise in cases. Other vaccines such as Russia’s Sputnik V, Pfizer-BioNTech’s and Johnson and Johnson’s are at varying degrees of regulatory approval. Should India change its approval process or shift to a one-dose strategy, COVID’s negative impact on INR could be reduced. But until then, COVID will likely weigh on the currency.

The other bearish development was the RBI’s dovish turn at their recent April meeting. They shrugged off the recent rise in inflation (February at 5% versus January at 4.1%) and instead focused on growth concerns around COVID. As part of their dovishness, they formally introduced a QE programme called G-SAP 1.0. For the current quarter, they plan to buy 1 trillion rupees ($14bn) of government bonds. Indian 10-year bond yields fell on the news and have now dropped almost 20bps from their peak in early March (Chart 6). This further reduces real yields in India.

This RBI action contrasts other EM central banks such as those of Brazil and Russia, which have hiked. Others such as the Central Bank of Turkey that have turned more dovish have seen their currencies weaken. Falling real rates and a dovish RBI suggest INR may struggle in coming weeks.  
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Spotlight View #3: KRW – Outperformance Resumes

The Korean won (KRW) started April with strong gains and is the top-performing Asian FX so far. This trend could continue as strong economic data, rising equity markets and renewed equity flows support the currency. SGX KRW/USD futures could return to the highs of around 0.91 last seen in February. This would equate to 1100 in USD/KRW spot.

Almost all recent Korea data has been strong. Both the manufacturing and non-manufacturing Bank of Korea business surveys for April moved to new cyclical highs, 20-day export growth data for March remained in double-digit territory, and core inflation for March rose to 1% (Chart 7). The only cloud on the horizon is a recent spike in COVID cases to 500 a day. These have appeared in clusters around kindergartens, bars and churches. So far, authorities have responded with expanded testing and tracing, which suggests the economic impact could be limited.

Meanwhile, Korean equities have started to rise again and are only a few percentage points below the highs seen in January. Importantly, the recent Korean underperformance relative to US markets appears over (Chart 8). At the same time, equity inflows to Korea surged over the past few weeks. All of this is supportive of KRW.
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Rest of Asia FX

TWD – Tech Boost Supports Currency

The Taiwan dollar (TWD) appears at a turning point after weakening for much of March. Certainly, the pace of declines has eased (Chart 9). Chipmaker TSMC’s stock price has stabilised, and the national benchmark, TAIEX, has rallied to new highs. Equity inflows also recently picked up. Investors will next focus on TSMC’s earnings on 15 April.

On the economic front, Taiwan’s PMI for March moved to new highs for the cycle, and export orders remain strong. Also, recent FX reserve data suggests less intervention to curb TWD strength. Taken together, TWD could continue to see positive momentum in coming weeks.

 

SGD – S$NEER at Highs, Limits SGD Gains vs USD

The Singapore dollar (SGD) has broadly traded sideways in recent weeks around 1.34 in USD/SGD (Chart 9). The S$NEER, though, has risen to its highest level since January 2020, driven by SGD strength versus EUR, CNH and MYR. This is a deviation from MAS’s target midpoint of the range in the NEER suggesting SGD may struggle to make gains against USD.

While activity has been strong whether PMI, retail sales or exports, inflation remains low. This should prevent the MAS from switching to a more hawkish policy for the currency in their 14 April meeting. We therefore expect USD/SGD to err on the side of being rangebound.
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SGX Commodities Insights (Iron Ore)

A Degree of Normalisation

The global commodities markets are exhibiting some consolidation and normalisation, including benchmarks oil and copper. Iron ore is no exception and appears to be establishing a range at a high level (Charts 1 and 2). Strong final demand is visible in high refining margins. This has also supported a rise in coal prices, which had yet to recover from their previous slump.

Shipping rates – already rising strongly as they ‘caught up’ to the rest of the industrial commodities complex – continued surging amid the Suez blockage. They have come off slightly since it cleared, as would be expected.

It is still possible, likely even, that ore prices will soften further as lockdown-related ferrous chain backlogs clear. But as global economic normalisation continues, more traditional macro patterns will likely dominate. Therefore, it is worth noting that credit conditions in China began to tighten somewhat weeks ago and may continue to do so.

Local production conditions, such as the recently imposed production curbs in Tangshan, are unlikely to have any lasting effect. They may well switch some short-term demand towards higher-grade fines, widening spreads, but also stimulate opportunistic portside restocking of lower-grade fines.

While there have been no important new supply-side developments, it is important to remember the context. Production levels remain and are forecast to hold below year-ago levels throughout 2021. This should continue to limit the price downside for ore even if demand begins to wane due to macro factors over coming months.
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Although the Suez situation may have temporarily boosted bulk shipping rates, there is no reason to expect that it will provide lasting support. There had already been a meaningful recovery due to general strong final demand across the globe, and the ‘gap’ to ore prices had already been closed before the blockage.

Most likely from here is that shipping rates and industrial commodity prices, including ore, respond to the usual macro factors. Currently, leading indicators in most of the world show that the recovery from the Covid slump is gathering pace. Fresh stimulus is also coming, including in the US. Any industrial commodity price consolidation, therefore, will likely remain limited for the foreseeable future.

 

 

China Growth Tracker

Macro Hive <a href="https://api2.sgx.com/sites/default/files/2020-10/Using%20Iron%20Ore%20To%20Track%20China%20Growth%20-%20July%202020.pdf">research for SGX</a> has found that iron ore, along with several other commodity and bond markets, tracks Chinese growth closely. Therefore, these markets can indicate future reported Chinese growth. And divergences across them can be exploited. Here are their latest developments: 

  

<ul>
<li>Iron ore prices have bounced by 6% over the past two weeks and the annual growth rate has picked up (Chart 1).</li>
	<li>Most other commodity prices have fallen. Oil has fallen 2%, copper has dropped 1% and the Baltic Dry index has fallen 3% over the past two weeks. There annual growth rates have also fallen (Charts 1, 2 and 4)</li>
	<li>Chinese bond yields, meanwhile, have risen. Taking all these indicators together suggests robust Chinese growth, though the picture is less bullish than before.</li>
	<li>In our last report, we had favoured buying iron ore (SCOK1) and selling copper (LPK21). This trade has worked well with large gains in iron ore and a small decline in copper prices. There is scope for further iron ore gains, so we maintain the trades.</li>
</ul>
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<html><body>(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Macro Hive Limited. While SGX has participated as a sponsor, SGX has not had any input into the content and neither SGX nor its affiliates shall be responsible or liable for the same.)</body></html>



By Macro Hive

 

SGX Asia Currencies Insights


CNH has traded well against most currencies, and flows remain strong. Therefore, recent USD/CNH rise will likely be temporary.
	The bullish INR story has been derailed by a worsening COVID picture and a dovish RBI. We expect near-term weakness.
	Korea economic data and equity flows have picked up which supports KRW
	Recent tech bounce supports TWD
	S$NEER is trading above MAS’s mid-point target. Thus suggests SGD has limited gains against USD in near-term

 

SGX Commodities Insights (Iron Ore)


Industrial commodity prices consolidating at high levels.
	Strong steel demand and margins remain supportive for ore.
	The Suez situation may have briefly boosted shipping rates.
	Traditional macro factors likely to dominate going forward.

 

China Growth Tracker


Iron ore prices have bounced by 6% over the past two weeks and the annual growth rate has picked up. Meanwhile, oil and copper prices have fallen.
	Elsewhere, Chinese bond yields have risen. Taking all these indicators together suggests robust Chinese growth, though the picture is less bullish than before.
	In our last report, we had favoured buying iron ore (SCOK1) and selling copper (LPK21). This trade has worked well with large gains in iron ore and a small decline in copper prices. There is scope for further iron ore gains, so we maintain these trades.

 

SGX Asia Currencies Insights

Spotlight View #1: CNH Strength 

The Chinese yuan (CNH) has made small gains against the dollar (USD) since the start of the month. This follows CNH weakness over March. While the USD/CNH trend was more mixed in recent months, the Chinese yuan trade-weighted basket (CFETS basket) has broadly been trending up (Chart 1). This suggests that broader CNH fundamentals are positive, but the dollar has outperformed lately. However, we expect the bulk of the USD/CNH rally to be behind us.

Looking at CNH crosses, CNH has trended up against its major trade partners’ currencies like the EUR and JPY (Chart 2). This broad CNH strength likely reflects a robust economy as exhibited by recent high-than-expected services PMIs (56.3 for March versus 52 expected) and negligible COVID cases. Chinese FX settlement data also imply significant FX inflows (Chart 3).



      
    
    202104_1E


One question for CNH is whether the authorities’ discomfort with excessive credit growth will lead to currency strength or weakness. Historically, the relationship between credit and the currency has been mixed. Certainly, the authorities’ desire to stimulate domestic consumption would suggest a stronger CNH – however, exporters may need a weaker currency to soften the impact of deleveraging. Chinese 10-year yields have recently stabilised after falling, and this has coincided with CNH strength (Chart 4).

The other question is whether broader USD strength will continue. Rate differentials suggest dollar strength or stability depending on tenor. Meanwhile, upgrades to US growth expectations appear to have stalled after significantly moving up over February and early March.

Together, these factors suggest that the bulk of the rise in USD/CNH is likely behind us. Indeed, during the 15-month downtrend of USD/CNH starting in early 2017, the currency saw several counter-trend rallies of 1.5% to 2.5%. We could be seeing similar dynamics today – USD/CNH has been trending down for 10 months, and the latest bout of USD/CNH strength could be a correction within a longer downtrend. We therefore continue to favour USD/CNH downside.



      
    
    202104_2E


Spotlight View #2: INR to Struggle   

The Indian rupee (INR) tumbled in recent weeks thanks to an acceleration in COVID cases and a dovish RBI. INR has relinquished all gains for the year and returned to levels last seen in November 2020. Until the domestic backdrop improves, we could see further INR weakness, with SGX INR/USD futures possibly reaching 133.3 or even 131.6 (USD/INR at 75 or even 76).

India has now joined Brazil as the main focal points for COVID. Brazil suffers from a rising death rate from COVID, while India now experiences a higher daily COVID case count than during its first wave in summer 2020. Daily cases recently exceeded 100,000 a day (Chart 5). The reproduction rate (R0) is estimated at almost 1.5 – the highest among developed and major developing economies.

Meanwhile, India’s vaccination has quickened, with almost 5 million daily shots recently administered. However, with only two approved vaccines – AstraZeneca’s (locally branded as Covishield) and domestically developed Covaxin (Bharat Biotech) – vaccine supply is falling behind the rise in cases. Other vaccines such as Russia’s Sputnik V, Pfizer-BioNTech’s and Johnson and Johnson’s are at varying degrees of regulatory approval. Should India change its approval process or shift to a one-dose strategy, COVID’s negative impact on INR could be reduced. But until then, COVID will likely weigh on the currency.

The other bearish development was the RBI’s dovish turn at their recent April meeting. They shrugged off the recent rise in inflation (February at 5% versus January at 4.1%) and instead focused on growth concerns around COVID. As part of their dovishness, they formally introduced a QE programme called G-SAP 1.0. For the current quarter, they plan to buy 1 trillion rupees ($14bn) of government bonds. Indian 10-year bond yields fell on the news and have now dropped almost 20bps from their peak in early March (Chart 6). This further reduces real yields in India.

This RBI action contrasts other EM central banks such as those of Brazil and Russia, which have hiked. Others such as the Central Bank of Turkey that have turned more dovish have seen their currencies weaken. Falling real rates and a dovish RBI suggest INR may struggle in coming weeks.  



      
    
    202104_3E


Spotlight View #3: KRW – Outperformance Resumes

The Korean won (KRW) started April with strong gains and is the top-performing Asian FX so far. This trend could continue as strong economic data, rising equity markets and renewed equity flows support the currency. SGX KRW/USD futures could return to the highs of around 0.91 last seen in February. This would equate to 1100 in USD/KRW spot.

Almost all recent Korea data has been strong. Both the manufacturing and non-manufacturing Bank of Korea business surveys for April moved to new cyclical highs, 20-day export growth data for March remained in double-digit territory, and core inflation for March rose to 1% (Chart 7). The only cloud on the horizon is a recent spike in COVID cases to 500 a day. These have appeared in clusters around kindergartens, bars and churches. So far, authorities have responded with expanded testing and tracing, which suggests the economic impact could be limited.

Meanwhile, Korean equities have started to rise again and are only a few percentage points below the highs seen in January. Importantly, the recent Korean underperformance relative to US markets appears over (Chart 8). At the same time, equity inflows to Korea surged over the past few weeks. All of this is supportive of KRW.



      
    
    202104_4E


Rest of Asia FX

TWD – Tech Boost Supports Currency

The Taiwan dollar (TWD) appears at a turning point after weakening for much of March. Certainly, the pace of declines has eased (Chart 9). Chipmaker TSMC’s stock price has stabilised, and the national benchmark, TAIEX, has rallied to new highs. Equity inflows also recently picked up. Investors will next focus on TSMC’s earnings on 15 April.

On the economic front, Taiwan’s PMI for March moved to new highs for the cycle, and export orders remain strong. Also, recent FX reserve data suggests less intervention to curb TWD strength. Taken together, TWD could continue to see positive momentum in coming weeks.

 

SGD – S$NEER at Highs, Limits SGD Gains vs USD

The Singapore dollar (SGD) has broadly traded sideways in recent weeks around 1.34 in USD/SGD (Chart 9). The S$NEER, though, has risen to its highest level since January 2020, driven by SGD strength versus EUR, CNH and MYR. This is a deviation from MAS’s target midpoint of the range in the NEER suggesting SGD may struggle to make gains against USD.

While activity has been strong whether PMI, retail sales or exports, inflation remains low. This should prevent the MAS from switching to a more hawkish policy for the currency in their 14 April meeting. We therefore expect USD/SGD to err on the side of being rangebound.



      
    
    202104_5E


SGX Commodities Insights (Iron Ore)

A Degree of Normalisation

The global commodities markets are exhibiting some consolidation and normalisation, including benchmarks oil and copper. Iron ore is no exception and appears to be establishing a range at a high level (Charts 1 and 2). Strong final demand is visible in high refining margins. This has also supported a rise in coal prices, which had yet to recover from their previous slump.

Shipping rates – already rising strongly as they ‘caught up’ to the rest of the industrial commodities complex – continued surging amid the Suez blockage. They have come off slightly since it cleared, as would be expected.

It is still possible, likely even, that ore prices will soften further as lockdown-related ferrous chain backlogs clear. But as global economic normalisation continues, more traditional macro patterns will likely dominate. Therefore, it is worth noting that credit conditions in China began to tighten somewhat weeks ago and may continue to do so.

Local production conditions, such as the recently imposed production curbs in Tangshan, are unlikely to have any lasting effect. They may well switch some short-term demand towards higher-grade fines, widening spreads, but also stimulate opportunistic portside restocking of lower-grade fines.

While there have been no important new supply-side developments, it is important to remember the context. Production levels remain and are forecast to hold below year-ago levels throughout 2021. This should continue to limit the price downside for ore even if demand begins to wane due to macro factors over coming months.



      
    
    202104_6E


Although the Suez situation may have temporarily boosted bulk shipping rates, there is no reason to expect that it will provide lasting support. There had already been a meaningful recovery due to general strong final demand across the globe, and the ‘gap’ to ore prices had already been closed before the blockage.

Most likely from here is that shipping rates and industrial commodity prices, including ore, respond to the usual macro factors. Currently, leading indicators in most of the world show that the recovery from the Covid slump is gathering pace. Fresh stimulus is also coming, including in the US. Any industrial commodity price consolidation, therefore, will likely remain limited for the foreseeable future.

 

 

China Growth Tracker

Macro Hive research for SGX has found that iron ore, along with several other commodity and bond markets, tracks Chinese growth closely. Therefore, these markets can indicate future reported Chinese growth. And divergences across them can be exploited. Here are their latest developments: 

  


Iron ore prices have bounced by 6% over the past two weeks and the annual growth rate has picked up (Chart 1).
	Most other commodity prices have fallen. Oil has fallen 2%, copper has dropped 1% and the Baltic Dry index has fallen 3% over the past two weeks. There annual growth rates have also fallen (Charts 1, 2 and 4)
	Chinese bond yields, meanwhile, have risen. Taking all these indicators together suggests robust Chinese growth, though the picture is less bullish than before.
	In our last report, we had favoured buying iron ore (SCOK1) and selling copper (LPK21). This trade has worked well with large gains in iron ore and a small decline in copper prices. There is scope for further iron ore gains, so we maintain the trades.




      
    
    202104_7E

      
    
    202104_8E

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Macro Hive Limited. While SGX has participated as a sponsor, SGX has not had any input into the content and neither SGX nor its affiliates shall be responsible or liable for the same.)


SGX Asia Currencies and Commodities Insights

Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

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SGX Asia Currencies and Commodities Insights

By Macro Hive SGX Asia Currencies Insights CNH has traded well against most currencies, and flows remain strong. Therefore, recent USD/CNH...

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Why are investors buying into Oxford Biomedica (LN:OXB)? In this interview, BBC broadcaster Vivienne Parry OBE asks CEO John Dawson why Oxford...

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