Thursday, October 1, 2015

Singapore's September PMI falls for third month in a row

Singapore's September PMI falls for third month in a row

Economists see high chance of technical recession in third quarter; but North American data suggests bottoming out for electronics industry

By
nishar@sph.com.sg@Nisha_BT  
Singapore
SINGAPORE'S manufacturing sector contracted again in September, as the Purchasing Managers' Index (PMI) continued its downward slide for the third month, disappointing with a reading of 48.6.
This was lower than the 49.3 recorded in August and the 49.7 score in July.
Factors cited for the drag by the Singapore Institute of Purchasing and Materials Management (SIPMM) included declines in new orders, new export orders and production output. Meanwhile, inventory and stockholdings of finished goods continued to expand.
A PMI reading above 50 indicates that the manufacturing economy is expanding and a reading below 50, declining.
While the contraction in September didn't come as a major surprise, it was deeper than some private-sector economists had projected. "It's lower than what we expected by one point," said Barclays economist Leong Wai Ho, pointing to a huge inventory overhang in North Asia for electronics as a contributing factor for the decline.
The electronics index dipped 0.5 point over the previous month to 48.5 in September, in contraction territory for the third consecutive month. Electronics is a key pillar of Singapore's manufacturing sector.
"Singapore probably is facing a double whammy from lacklustre external demand and domestic constraints from higher costs and tight manpower supply," said Selena Ling, head of treasury research & strategy at OCBC Bank, noting that this was the poorest print since Dec 2012.
Across the region, the picture was a mixed one. While PMIs for China and other markets such as South Korea, Taiwan and Malaysia also contracted, there was some stabilisation, if not modest improvements, noted Ms Ling. On the other hand, Indonesia, India and Vietnam - like Singapore - reported weaker figures for September vis-a-vis August.
Aside from the external slowdown, UOB economist Francis Tan pointed out that Singapore's manufacturing sector is also being hit by the stronger Singapore dollar compared to some regional currencies, which is eroding competitiveness. As such, at the Monetary Authority of Singapore's (MAS) next policy review this month, Mr Tan expects the MAS to ease the midpoint of the Singapore dollar nominal effective exchange rate (S$NEER) downwards by one per cent to level the playing field against certain economies. These include Taiwan, South Korea and Japan. However, he doesn't expect MAS to shift to a neutral policy stance.
But it isn't all gloom-and-doom. One bright spot is that the improvement in the North American semiconductor book-to-bill ratio could suggest a bottoming out for the electronics industry, added Ms Ling, highlighting the ratio clocked 1.06 in August from a year-to-date low of 0.98 in June. The ratio is a key gauge of shipments and orders of North American semiconductor makers.
Ms Ling went on to say: "In addition, the base effects for domestic industrial production for the September-December should be turning more favourable. As such, we still expect manufacturing growth to contract a less severe 1.7 per cent year on year in 4Q15, versus an anticipated 4.9 per cent year on year decline in 3Q15."
Economists also said that the chances of a technical recession - defined as two straight quarters of consecutive decline - for 3Q15 are pretty high.
"Barring an unexpected jump in industrial production, we expect manufacturing activity to contract more deeply in Q3," said Vishnu Varathan, senior economist at Mizuho Bank. He added that a technical recession was likely on the cards, unless the service sectors could surprise with a "disproportionately" large offset.
But Barclays' Mr Leong warned against hitting the panic button.
While a "mild" technical recession is likely, he does not expect job losses, given it is more a result of a slowdown in the region, which is having a knock-on effect on Singapore's economy.

Williams says uncertainty alone shouldn't stop Fed rate increase

Williams says uncertainty alone shouldn't stop Fed rate increase

[WASHINGTON] Federal Reserve Bank of San Francisco President John Williams said risks to the economy from developments abroad haven't worsened and that domestic conditions remain positive, while repeating his call to raise interest rates this year.
"On the global side, I'm not seeing any obvious signs that those risks that were on my mind and the minds of others, I don't see signs that those have gotten worse," Mr Williams, a voting member on the Fed's policy committee this year, said in Salt Lake City on Thursday. He was answering questions from the audience after delivering a speech.
"There's always going to be risks, there's always going to be uncertainties," he said. Even so, "we're going to have to take actions that we think are the appropriate ones given our goals."
The Fed has kept its main policy interest rate near-zero since 2008. The decision by policy makers to delay liftoff at their Sept 16-17 meeting has been described as a close call by members of the committee including Mr Williams, Chair Janet Yellen and Atlanta Fed President Dennis Lockhart.
CLOSE DECISION
"When you have a close decision like that, it doesn't take a lot of information to tip the balance," Mr Williams said in a question session with reporters, explaining that a rate increase is on-the-table at the Fed's next meeting in October. Even if rates increase soon, Williams said he expects the unemployment rate to fall below 5 per cent this year.
The Fed's deliberations are taking place as the labor market improves and inflation remains stagnant.
The jobless rate fell to 5.1 per cent in August, and a new report that will be released on Friday is expected to show that it held steady last month, based on the median forecast in a Bloomberg survey of economists.
Meanwhile, the Fed's preferred measure of inflation stood at just 0.3 per cent in August, and hasn't touched the central bank's 2 per cent goal since 2012.
Mr Williams said in his speech that as the Bank of Japan, European Central Bank and People's Bank of China use stimulus, it's helping to boost the US dollar, which affects the prices of imports and exports and feeds through to inflation.
"We're just hit more by events abroad, and those are part of the economic environment that we are in today," he said, when asked if the international integration of financial and economic systems had affected the effectiveness of monetary policy.
BLOOMBERG

JPMorgan to pay most in US$1.86b swaps price-fixing settlement

JPMorgan to pay most in US$1.86b swaps price-fixing settlement

[BENGALURU] JPMorgan Chase & Co is set to pay almost a third of a US$1.86 billion settlement to resolve claims that a dozen big banks conspired to limit competition in the credit-default swaps market, Bloomberg reported.
JPMorgan is paying US$595 million, Bloomberg said, citing people who asked not to be identified because the firms haven't disclosed how they're splitting costs.
Morgan Stanley, Barclays Plc and Goldman Sachs Group Inc are paying about US$230 million, US$175 million and US$164 million, respectively, the report said.
Goldman, JPMorgan and Barclays declined to comment. Morgan Stanley was not immediately available to comment on the report.
Credit default swaps are contracts that let investors buy protection to hedge against the risk that corporate or sovereign debt issuers will not meet their payment obligations.
REUTERS

728 X 90

336 x 280

300 X 250

320 X 100

300 X600