FxWirePro: Be cognizant of cyclical effects in Singapore, Capture SGD vols for hedging an extended risk-off scenario

Singapore’s economic performance is largely perceived as a bellwether for the health of the region. This is predominantly because of the diminutive and liberal in nature of the economy. The other major economy in the region that also plays a vital role is South Korea, particularly the trade trends given the country’s integration in global supply chains. It is quite early to get any indications of spillovers from the recently imposed US tariffs on Chinese imports. Any negative impact to global trade will inevitably be seen in the Singapore and South Korea GDP and trade numbers.

The Singapore economy grew a decent 3.8% YoY in Q2 following the strong 4.3% in Q1. This implies around 4.1% in H1’2018 and well the government’s 3-3.5% projection for 2018.

The current picture is that the region’s economic performance is strong but the outlook for the second half is murkier. USDSGD has risen by around 2% since the start of June to around 1.3630, in line with the weakness in Asian currencies led by CNY’s drop, and the near-term bias is still to the upside.

We consider the second idea in the Asian vol space, this time aimed at harvesting a positive Carry and to offer some protection in case that the trade dispute between the US and China were to intensify. We were recommending entering a long 6M USDKRW vol/ short 6M USDTWD vol idea for benefitting from the relative cheapness of KRW vol compared to regional peers. It is SGD vol which catches our attention as a possible laggard in the Asian space, if ever as a cheap hedge for the short-vol leg rather than as a conviction trade for hedging an extended risk-off scenario in the region. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index has shown 28 (which is bullish), while USD is flashing at 76 (bullish) while articulating at 10:25 GMT.

For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex