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Singapore will extend the circuit breaker ala “lockdown” by four weeks to 1-June. The sensational headlines will read that Singapore has lost control of the fight on Covid-19 as the number of cases shot up 9-fold to above 9,000 in just the last three weeks.
However, the situation is not as dire as what the headlines may suggest. More than 80% of the cases is due to increase testing among foreign workers. They make up around 300k or 20% of the total foreign workforce and are mainly in the construction sector. The number of cases in the wider community is contained to around 30-50 in the past fortnight but this was deemed to be uncomfortably high after two weeks of the circuit breaker and hence, the extension. The government will provide an additional SGD3.8bn to support businesses. This is on top of the SGD60bn fiscal support which brings the total to nearly SGD64bn or 12.8% of GDP.
SGD did not take the extension favourably and USD-SGD rose over 100 pips to 1.4320 yesterday. It is still below the peak in late March of around 1.4650 and MAS would probably be content on the relative stability since then.
We consider the following:
AS we could foresee the further upside traction in the weeks to come, we advocate 1m ATM +0.51 delta USDSGD call options to arrest upside risks. One can observe the payoffs of this options contract, as and when the underlying spot keeps rallying, the relative payoffs keeps spiking commensurately.
Alternatively, we suggested 1M At-Expiry-Digital (USDINR >2% OTMS; USDKRW > 2% OTMS; USDSGD > 2% OTMS) call @ 2.8/4.8% indicative.
1M ATMS worst-of basket USD ATM call on (USDINR, USDKRW, USDSGD) @ 0.225/0.275% indicative. Courtesy: JPM & Commerzbank
