היורו וכלכלת סינגפור

CURRENCIES

 

 

THE EURO SUFFERS FROM WEAKER DATA

 

US growth superiority continues for longer than expected. The economic headwinds caused by measures to contain the spreading of the coronavirus are stronger for the Eurozone than for the US and support safe-haven currencies. We have adjusted our 3-month euro forecast down while being slightly more constructive for the JPY.

 

ZEW economic expectations for the eurozone declined to 8.7 in February after 26.7 in January.

US Empire Manufacturing survey rose to 12.9 in February after 4.8 in January.

We revise our 3-month EUR/USD forecast to 1.08 from 1.10 and USD/JPY to 109 from 110.

 

 

After a brief episode of positive economic data surprises in January, a wide range of eurozone economic indicators have disappointed expectations and even declined outright. On Tuesday, the expectations component of the ZEW survey was considerably lower than in the previous month and lower than the expected consolidation, signalling a deteriorating economic outlook. In contrast, US economic indicators are doing much better, with the Empire Manufacturing survey for February rising sharply, beating expectations by a wide margin. A superior US economic backdrop in the last year has already served as a reliable guide for USD appreciation against the EUR. We adjust our expectations that US superiority will peter out in the near term and have consequently adjusted our 3-month EUR/USD forecast to 1.08, signalling a cautious short-term stance for the EUR and favouring the USD. The economic headwinds caused by measures to contain the spreading of the coronavirus will be felt more pronounced in the eurozone than in the relatively closed US economy. The resulting postponement of a broad economic recovery pushes the expected peaking of the USD into the second half of 2020. The overall riskier backdrop justifies a slightly stronger JPY, which profits despite a soft Japanese economy from its safe-haven characteristics. We have adjusted our USD/JPY outlook to 109 from 110.

 

David Kohl, Chief Currency Economist, Julius Baer

 

 

 

*

 

 

 

FIXED INCOME

 

 

SINGAPORE: RECORD COMPREHENSIVE BUDGET TO SUPPORT ECONOMY

 

 

 

The government is drawing on accumulated fiscal surplus, allowing for a second year of budget deficit in FY2020, as it seeks to counter the economic fallout of the virus outbreak. While the SGD has weakened vs the USD, the SGBs gained as lower yields globally still make the positive-yielding bonds of high credit rating a good structural and relative value play as central banks globally keep their monetary policies accommodative. For equities, we keep a defensive tilt in stock selection due to the uncertainty of the duration of this slowdown.

 

Singapore’s Deputy Prime Minister and Finance Minister Heng Swee Keat announced that the government will set aside SGD800m for ministries to fight the COVID-19 outbreak and also provide two economic packages worth SGD5.6bn to help businesses and workers, as the impact on the economy already exceeds that of the Severe Acute Respiratory Syndrome (SARS) outbreak. The country now has more than 80 confirmed COVID-19 cases. Even before the virus outbreak, Singapore’s economic growth was already suffering from the ongoing US-China trade war. On Monday, the government downgraded its economic growth outlook for this year as it prepares for stimulus to counter the impact of the virus outbreak on the country’s economy. The tourism and aviation sectors are the hardest hit, with tourist arrivals dropping between 25% and 30% this year, and air traffic through Changi Airport has declined owing to measures taken to contain the spread of the virus. Other than tourism and consumption spending, the export-dependent economy is also hit by supply chain disruption and lower import demand from China. The sectors that were hit hardest received the most support, with a slew of measures announced for the tourism and aviation sectors. These included property tax rebates for hotels and serviced apartments, cruise and ferry terminals, the two integrated resorts and Changi Airport, as well as rebates on aircraft landing and parking charges. The most notable near-term stimulus measure included a SGD1.3bn wage credit for 1.9 billion local employees, similar to a measure deployed during the implementation of GST. While these should mitigate the effects of the ongoing slowdown, damage from the COVID-19 has already been inflicted and recovery will take time.