Skip to main content
Citi

2 very different guiding themes for G10 FX to year-end

-->2 very different guiding themes for G10 FX to year-end       
  • USD: US fiscal stimulus in right direction – US fiscal stimulus talks appear to be progressing with Politico reporting Friday it is quite likely a Covid relief bill will come together. Further headlines confirm as much with House Speaker Pelosi saying she and Senate Republican leader McConnell hope to combine a coronavirus relief measure with an omnibus spending bill ahead of December 11 (deadline for a US government shutdown). Meanwhile, House Majority Leader  Hoyer notes “If USD908bn over 4 months is what we agree on then we ought to pass it.” Citi analysts base case is for a ~USD1tn fiscal package - that will be the last major tranche of COVID-related fiscal stimulus.  

  • GBP: Brexit talks delayed yet again with this week the “make or break” - expectations for an "imminent" deal build early Friday that sees cable hitting a high of 1.3532. But the gains reverse just as quickly when the two chief negotiators state that conditions for an agreement are not met due to significant divergences on level playing field, governance and fisheries. On that basis, the 2 sides agree to pause talks over the weekend. The incentive to get a deal done remains overwhelming for both sides yet time is now running out. PM Johnson’s plans to bring back the UK Internal Market Bill this week also does no favors to the talks as the bill undermines the Withdrawal Agreement signed by both UK and EU. Nevertheless, Citi analysts believes a deal remains likely before the transition period ends on December 31 - which is what matters for sterling and sterling assets.        

 

 

Data releases Friday            

  • USD: US jobs weaker than expected in November but doesn’t change the outlook - jobs growth comes in weaker than expected in November at 245K, below consensus for 450K and Citi’s above consensus at 600K. However, average hourly earnings are stronger, up 0.3%MoM and the unemployment rate falls to 6.7% from 6.9% but largely due to the fall in participation rate by 0.2pp to 61.5%. The weaker headline notwithstanding, the number is close enough to expectations to not substantially alter the US economic outlook while also raising the probability of a fiscal deal.       

  • CAD: Resilience in labor market continues despite restrictions - Canadian employment rises by 62.1k jobs in November, much stronger than expected with strength in full-time employment, which is up by 99.4k jobs, while part-time employment declines by 37.4k. The unemployment rate also falls to 8.5%. Meanwhile, hours worked rise at a stronger pace in November than October, suggesting upside risks to Citi analysts’ estimate for Canadian Q4 GDP at 2.5%.      

 

Week Ahead           

  • USD: US CPI MoM – Citi: 0.2%, median: 0.1%, prior: 0.0%; CPI YoY – Citi: 1.1%, median: 1.1%, prior: 1.2%; CPI ex Food, Energy MoM – Citi: 0.1%, median: 0.1%, prior: 0.0%; CPI ex Food, Energy YoY – Citi: 1.5%, median: 1.5%, prior: 1.6% - Citi analysts expect a modest increase of 0.09%MoM in core CPI in November following a softer month with prices close to unchanged in October.          
  • USD: US PPI Final Demand MoM – Citi: 0.2%, median: 0.1%, prior: 0.3%; PPI Final Demand YoY – Citi: 0.7%, median: 0.7%, prior: 0.5%; PPI ex Food, Energy MoM – Citi: 0.1%, median: 0.2%, prior: 0.1%; PPI ex Food, Energy YoY – Citi: 1.5%, median: 1.5%, prior: 1.1%; PPI ex Food, Energy, Trade Services MoM – Citi: 0.2%, median: 0.2%, prior: 0.2% - PPI final demand and core measures should rise solidly in November, indicating underlying trend of inflation has not weakened significantly.
  • USD: University of Michigan Sentiment – Citi: 79.4, median: 76.0, prior: 76.9; University of Michigan Inflation Expectations 1y Ahead – Citi: 2.7%, median: NA, prior: 2.8% - Citi analysts expect the University of Michigan consumer sentiment indicator to increase in December though  elevated virus cases and subsequent new activity restrictions could weigh on current conditions while optimistic vaccine news could boost the future expectations components of the survey.
  • EUR: ECB board meeting - Citi analysts expect the ECB to put growing emphasis on financial stability and increase the PEPP envelope (circa €650bn) accompanied by a clear statement that this envelope may be spent only in the amounts necessary to stabilize yield curves. TLTRO – Citi analysts expect subsidized TLTROs to be available through the pandemic, but the subsidized rate is unlikely to be lowered further. ECB HICP Forecasts? More Undershooting – Citi analysts expect the focus to be on 2023 HICP mid-point and the gap between ECB’s forecast and its medium term inflation objective is expected to remain substantial.
  • EUR: German ZEW Expectations, December: Forecast: 46.0, Prior: 39.0; ZEW Current Assessment, December: Forecast: -62.0, Prior: -64.3 - arrival of Covid-19 vaccines should boost financial analysts’ expectations for the German economy. It will be interesting to see the sectoral distribution of profit expectations - Citi analysts expect manufacturing sectors to do particularly well.
  • CNY: China Exports (%YoY) November: Citi 12.5, Consensus 11.9, Previous 11.4; Imports (%YoY): Citi 6.8, Consensus 7.3, Previous 4.7; Trade Balance (US$bn): Citi 52.2, Consensus 52.8, Previous 58.4 - China’s exports might have further accelerated in November for three reasons – (1) China’s PMI new export orders and import index continue to improve; (2) Recent surges in Covid-19 cases in Europe and US continue to support the strong labor intensive and medical goods exports; (3) Korea’s exports for the first 20 days, lead data for China’s M&E imports, have reversed from a decline.
  • CAD: Bank of Canada meeting – Citi: 0.25%, median: 0.25%, prior: 0.25% - following adjustments to the BoC’s bond buying program in October, Citi analysts do not expect any substantial changes to policy at the December BoC meeting. Messaging around the economy though could slightly dovish, given risks to activity due to new business closures and activity restrictions.  

 

This is an extract from the Daily Currency Update, dated December 7, 2020. Please approach a Citigold Relationship Manager if you would like more information.

Leave a Reply

Image CAPTCHA
Enter the characters shown in the image.