Despite the Budget address being 2 hours long, there was very little that was mentioned that could move SGD significantly. Finance Minister Tharman did attempt to tackle several concerns of Singaporeans though, primarily the rising cost of living and the increasing numbers of foreigners within Singapore shores, with the proposed solutions as follow:
1) Foreign worker levies to rise – most significant in sectors (not named specifically) where productivity growth is weak and growth of foreign workforce is significant.
2) Higher taxes for properties and luxury cars
Many Singaporeans have been asking for Government to close the gates for foreigner workers, as they fear that foreigners are taking away jobs from local Singaporeans. Corporations on the other hand are worried that labor costs will increase tremendously if cheaper foreign workers are no longer available. This impasse was met halfway yesterday with solution(1), which proposes to reduce workers in efficient industries. This is actually a good solution as Singapore may be forced to restructure her economy soon to match global challenges. In recent weeks, we’ve observed how the local manufacturing arm of electronics and pharmaceutical products are not performing as well as they should, despite the recovery of China, Euro-Zone and US economies – the traditional consumers of high-end products. This suggest that there is inherent weakness in the sector that is attributable to local deficiencies. Reducing cheaper labor will force companies to reinvent themselves or perhaps shift their products to meet other global needs. Certainly we are not expecting a seismic shift like Nokia, but a transitional move like how Apple converted itself it the early 90s to 2000s is possible.
Regarding cost of living, higher taxes for properties are certainly welcome by Singaporeans, most of whom do not earn private properties which will see the highest gains. Also, the tax for non-owner occupied residential properties will be higher, reducing the margin of those who invest in residential properties and hopefully reducing the incentive for foreign funds to buy them. This is on top of the recent doubling of stamp duties for foreigner purchases, which will erode profit margins of investments further.
The Monetary Authority of Singapore has also announced a cap on Motor Vehicle Loans from Today. This move will also help to reduce the cost of cars as the rich will have less incentives to buy cars at low interest rates (average car loan rate is around 1.3-2% per annum).
All these measures should work if implemented properly, however it is hard to see SGD being heavily impacted in the short-term. At most, the long-term risk of Singapore GDP falling will be lower, which will lift SGD, or at least maintain current elevated status of SGD in the future.
Traders did not react strongly to the Budget announcement, with price barely moving during and shortly after the address. Price did indeed move to the 1.237 support during US opening hours, however that is due more to early market optimism weakening USD rather than a pure SGD move itself. Price started to reverse back when Italian voting results came in, showing no clear winners. Market abhors uncertainty, and we saw stocks falling rapidly – pushing USD back higher and USD/SGD up once more.
From a Technical perspective, 1.24 remains highly critical for any bullish bias. Price has failed to even test 1.24 during this rally and major doubts remain whether we will be able to see a breakout higher anytime soon. Stochastic is showing a peak which suggest that price is forming an interim top, which adds on to the possibility that 1.24 may hold.
Daily Chart is slightly more encouraging for bulls, with the sell-off to 1.237 not able to break the rising trendline. This present a good potential bullish breakout setup for bulls, as price is being squeezed between the 1.24 ceiling and the rising support. However, the reverse is true as well – should bulls fail to overtake 1.24 despite the squeeze, we will easily see price trading below the rising trendline support which may usher in bearish sentiment, potentially even breaking hte 1.235 support to start a new bear move.