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Case for US exceptionalisms - stronger than consensus US data across the board


-->Case for US exceptionalisms - stronger than consensus US data across the board          


  • USD: US retail sales strongly recover after seasonal weakness - after two months of declines, US retail sales roar back in January up 5.3%MoM (well-above consensus for 1.1%MoM and Citi's above-consensus 1.8%MoM) with the control-group up 6.0%MoM. On a year-on-year basis, total sales are up 7.4%YoY – the strongest since 2011 and the control-group is up a historically high 11.8%YoY.  

  • USD: Industrial production (IP) continues steady recovery – US IP advances a solid 0.9%MoM in January, above consensus for 0.4%MoM. Manufacturing activity is up 1.1%MoM and is now down just 1.1%YoY. The strong recovery in demand for consumption and investment goods is driving a steady recovery in manufacturing. Production is still slightly below pre-pandemic levels but should continue to rise, consistent with strength in other manufacturing indicators, such as ISM and PMIs.

  • USD: Across the board strength in PPI supportive of January core PCE  - US PPI final demand rises 1.3%MoM in January, much stronger than the 0.5% increase expected. PPI excluding food and energy, and the core measure which additionally excludes trade services prices, are both up 1.2%MoM and to 2.0%YoY. The surprisingly strong increase in January is much more than expected and based on components of CPI and PPI, Citi analysts expect another strong 0.32%MoM increase in January core PCE and for the year-on-year measure to rise to 1.6%. This should keep core PCE well on track to overshoot 2% around Q2 before ending the year close to and slightly above 2%.              


Fed minutes – improving outlook, not “substantial progress” but Citi analysts’ base case unchanged   

  • USD: Minutes from the January FOMC expectedly reflect an improving US economic outlook and more balanced risks around inflation but a Fed still judging it will be “some time” before “substantial further progress,” the criterion to taper the $120bln/month pace of asset purchases, is achieved. Still, Citi analysts emphasize that the Fed’s outlook is likely to rapidly evolve as economic and public health data suggest a faster rebound in activity and increasing upward pressure on prices.   

  • USD: Citi’s base-case remains for the Fed to taper asset purchases in Q4. The FOMC committee sees inflation risks as more balanced with “most” seeing risks as weighted to the downside. But Citi analysts will be listening closely in coming months as the US economic and public health situation improves and a robust discussion around the appropriate time to taper asset purchases ensues


EU vaccine update – catching up and falling behind again?

  • EUR: Citi analysts now see the EU gradually catching up with the US and UK on vaccine supply. However, a second pandemic with vaccine-resistant mutations could still pose downside risk to the euro area economic outlook. The UK seems to have a head start on a potential vaccine response to mutations, reducing the risks relatively. EU vaccine supply now also seem to be back on track with delivery schedules for Germany (at least) seen by journal Der Spiegel suggesting the regimen (prescribed two jabs) for two-thirds of the population will likely be delivered by end-2Q.  

  • EUR: Now upside risk to vaccine assumptions - Earlier this month, Citi analysts had assumed that the most critical 20-25% of the EU population would be fully vaccinated by late 2Q, with herd immunity levels by early 4Q. However, the new orders, approval and supply schedules above suggest upside risk here. But dealing with a potential second pandemic? – There is increasing evidence that mutations of the virus are beginning to dominate new infections in the EU. Germany’s government reports overnight that the share of new cases related to the UK variant had risen from 5-6% in January to 22% in February and in France even to 35%. The South African variant now accounts for 1.5% of new cases in Germany and 3-4% in France.


Other data releases overnight – UK CPI resilient, dovish risks to Canada CPI


  • GBP: UK inflation edges up further, more resilience to come - UK headline CPI inflation, targeted by the BoE, rises further to 0.7% YY in January from 0.6% in December  (Citi 0.7% YY, Consensus 0.6% YY). Core CPI though is steady at 1.4% YY (Citi 1.4%, consensus 1.3%). The data is marginally above BoE’s expectations which had expected CPI inflation of 0.6% YY. Citi analysts continue to expect goods inflation to prove relatively robust over coming months as border disruption continues to add to input costs and strong demand drives underlying inflation higher. Alongside base effects in energy prices, Citi analysts continue to expect headline CPI around target levels in Q2. 

  • CAD: Canada - revisions to core inflation measures create more uncertainty - while the 0.6% increase in Canada’s headline CPI is stronger than expected, the most surprising part of the January CPI report is substantial downward revisions to the core inflation measures over the last 5 years. For now, revisions to core inflation do not change the Citi analysts base case for the BoC to reduce the size of asset purchases starting in April, but they do undoubtedly create a more dovish risk. It will be very important to see how the BoC is viewing the revisions, with potentially more clarity as soon as Governor Macklem’s speech next week.         


Data releases today - Australian labor force                

  • AUD: Australia January Labor Force: Citi employment; +20k, Previous; +50k; Citi unemployment rate forecast; 6.6%, Previous; 6.6% - Citi analysts expect labor market to continue recovering in 2021 despite JobKeeper wage subsidy ending in March though excess spare capacity is expected to persist.


This is an extract from the Daily Currency Update, dated February 18, 2021. Please approach a Citigold Relationship Manager if you would like more information.

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