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DXY depreciated 0.2% to 101.94 but is still inside the 101.5-103 range set since 12 January. The Fed is in a blackout period before the FOMC meeting on 1 February. Bloomberg consensus expects the Fed to deliver a smaller 25 bps hike to 4.5-4.75%. The US Treasury 10Y yield fell 5.7 bps to 3.453%; 2Y eased 2.1 bps to 4.206%. On Friday, the PCE core deflator should fall to 4.4% YoY (consensus) in December from 4.7% in November, mirroring the fall in CPI core inflation to 5.7% from 6%. The S&P 500 and Nasdaq Composite closed above 4000 and 11300, respectively in the first two days of this week. Consensus forecasts tomorrow’s US advanced GDP growth to slow to an annualized 2.6% QoQ saar in 4Q22 from 3.2% in 3Q22. Although the resilient growth is underpinned by a pickup in personal consumption expenditure growth to 2.8% from 2.3%, investors are bracing for a downbeat outlook from the tech earnings season.
SGD depreciated 0.1% to 1.3196 per USD, holding well inside the 1.3130-1.3260 range set on 13 January. Today, consensus expects Singapore’s CPI inflation to slow to 6.6% YoY in December from 6.7% in November and core inflation to fall to 5% from 5.1%. Headline and core inflation peaked in September at 7.5% and 5.3%, respectively. Last week, as per the Singapore Index of Inflation Expectations, headline inflation expectations slowed to 3.8% in December from an 11-year high of 4.6% in September. This was lower than the MAS’s inflation forecast of 4.5-5.5%, which factored in the transitory effects of the GST hike. Many respondents attributed the lower inflation expectations to the global growth slowdown. Indeed, non-oil domestic exports contracted more than expected by 20.6% YoY in December vs the -16% consensus and -14.7% reading in November.
According to the Monetary Authority of Singapore Survey of Professional Forecasters in December, most respondents do not expect the central bank to adjust its SGD NEER policy band this year. We noted that the MAS started tightening its policy in October 2021 (and again at an inter-meeting in January 2022), five months before the first Fed hike in March 2022. This morning, our SGD NEER was 0.3% above the mid-point of its policy, a sign that growth worries have started to eclipse those of inflation. Hence, it is reasonable not to expect the MAS to join the Fed’s last hikes this quarter. Against this background, we see USD/SGD finding support around the floor of the 1.31-1.46 range set in 2015.
Quote of the day
“If you board the wrong train, it is no use running along the corridor in the other direction.”
Dietrich Bonhoeffer
25 January in history
Mother Teresa was honored with India’s highest civilian award, the Bharat Ratna, in 1980.
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