To learn how to invest in Singapore for beginners, we always make the effort to analyse weekly data and find out if there are any new economic trends that the data is trying to tell us.
Over the last week, we had two data releases, namely the July Import and Export price indices as well as the purchasing manager index. These two indexes are rather important as they can be good barometers for Singapore’s economic health.
IMPORT PRICE INDEX
The import price index is important as it is one of the four main leading or coincident indicators used by MAS when evaluating the CPI print. In the month of Jul, the import index came in weaker at -2.1% Year on Year. Part of the reason for the decline was that price increase has moderated for manufacturing and thus the effects of multiyear decline in petrol chemical industry has gotten through. Petrochemical, Gas and Plastics were down 8 to 9 % on a y o y basis. To provide some context with regard to the weakness in petrochemical prices, the Asia Gasoline Singapore Cargo Spot started the year at 55 USD/barrel, climbed to USD 78 and has since dropped to USD 65 per barrel.
Some of us may wonder why we lumped the gas and plastics with petrochemical. The reason is because, plastics can be manufactured through the use of petrochemical or natural gas as feedstock. Hence, any weakness in the petrochemical industry will naturally translate into the price of plastics.
PURCHASING MANAGER INDEX
The Singapore Manufacturing PMI increased to 49.9 in August of 2019 from 49.8 in the previous month. While this may seem like an improvement, PMI below 50 is commonly interpreted as being contractionary in nature. In that regard, Singapore PMI has been contracting for four straight months. The reason why this is important is because the PMI measures purchasing manager’s confidence in the demand and supply outlook for the manufacturing sector. Due to the knock on effects within a manufacturing supply chain, the sentiment of purchasing managers can and do lead the manufacturing economic data.
WEAK DATA, ACCOMMODATIVE MONETARY POLICY?
With the recent data points being rather weak and suggesting continued weakness in both the consumer price index and coming GDP prints, we are expecting that MAS will ease the band for the Sing NEER. The Sing NEER is the band which the Singapore Currency is allowed to fluctuate in. Singapore does not conduct monetary policy through interest rates but rather uses the exchange rate to ensure sustained economic growth at stable prices. If MAS is to ease the slope of the SGD NEER, we should see a weaker SGD for some time to come.