SGD: J.P. Morgan Sees Downside S$NEER Risks
The global bank on tomorrow's MAS decision and the outlook for the S$NEER. It sees downside risks for the NEER even with an on hold outcome tomorrow (although it notes tomorrow's decision is a close call). See below for more details.
J.P. Morgan: "MAS on hold a positive for S$NEER shorts. MAS releases its quarterly monetary policy statement on Wed, 30th Jul, where we now expect policy settings to remain unchanged after two consecutive reductions to the slope of the policy bands. Consensus has generally leaned that way as well, though some calls for easing remain. The thesis for easing remains an elevated level of S$NEER after a historic tightening cycle from 2021-22, and a deteriorating growth outlook on the back of trade tensions - once front-loaded exports begin to fall off. We think it's a pretty close call overall, but bottoming inflation momentum, diminishing marginal impact of energy supply, and a re-tightening labour market skew us in the direction of a prudent pause this coming week. The impact this will have on SGD markets is less clear, with MAS easing offset by a weaker USD and safe haven flows given the city state’s financial centre status. Given the recent fall in front end SGD rates, however, carry has fallen to -121bps vs the basket, amounting to -70bps after accounting for the 50bps drift of the policy bands. Risk reward thus skews towards S$NEER shorts from here, with chances of tightening or band widening very slim at this point in the cycle."
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
