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China announces a raft of stimulus measures to support sentiment; USD at 4 month highs as China enters a critical phase to tackle Coronavirus

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China announces a raft of stimulus measures to support sentiment; USD at 4 month highs as China enters a critical phase to tackle Coronavirus                                   

  • Safe Havens (JPY, Gold & CHF): A slowdown in the growth rate of new coronavirus cases, coupled with policy support from China (please refer to the paragraph below for a list of Chinese stimulus measures so far) continues to support risk sentiment for now (though Gold remains particularly resilient to this current supportive risk backdrop). The number of cases now stands at over 70k+ globally, but in China over the weekend, just under 4k new cases are reported, leading to a healthy slowdown vs growth rates notched last week. Externally, cases continue to grow, with Singapore and Japan (due to the cruise liner) notching the most gains.                     
  • CNY: China announces a raft of stimulus measures to support sentiment - PBoC cuts MLF rate by 10bps to 3.15%. This is the first cut in the 1-year Medium-Term Lending Facility (MLF) after the 5bps cut on 5th November 2019 and plays a key role in reducing firms’ funding costs. Citi analysts also expect LPR (Loan Prime Rate) to be lowered by 10bps. Other measures undertaken so far – (1) China boosts local government bond issuance; (2) Facilitates loan supply for SMEs and property sectors; (3) Further lowering of interest rates likely — Citi analysts expect an additional 10bps and 5bps of MLF/SLF cuts in Q2 and Q3 respectively and a 50bps RRR cut in each of the two quarters. 
  • Safe Havens (JPY, Gold & CHF): That said, markets may still be somewhat overconfident in expecting a V-shaped recovery in China. More likely is a U-shaped recovery in physical markets and a “W” or a series of W’s in financial markets. Although Chinese policy responses are underway, supply chain recovery could be more problematic.  Various high-frequency traffic data are still down steeply Y-o-Y, pointing to a weak recovery.  Weak commodity demand in China also poses hurdles to imports from the US as part of the trade deal.  Oil prices in 1H20 could stay weak before recovering towards end-2020 with February demand likely to fall by ~3.4-mb/d.  
  • USD: The Week Ahead - Fed Minutes may give some insights on balance sheet plans and policy review. Attention will also turn to the Nevada caucus (22 Feb), with the last debate before Nevada to be held Feb. 19. The Nevada Democrat primary is the best proxy for Super Tuesday – where a third of delegates will be awarded. The current outlook for Nevada is more clouded given a lack of polls; however, indications suggest that Bernie Sanders will likely remain a front runner in the Democratic nomination process. This risk remains underpriced by USD investors.       

 

EUR: Vulnerable to negative Coronavirus sentiment for now          

  • EUR: Reasons for EUR’s decline – (1) EU less US (hard) data momentum is turning negative; (2) Downward revisions to Chinese and global growth in the face of the COVID-19 outbreak to impact the euro zone more given supply chain linkages between Europe and China – a supply chain recovery remains problematic in the near term even if Coronavirus sentiment makes an immediate turn; (3) Foreign (Japanese and European) investor buying of US bonds FX unhedged; (4) A poor technical picture; (5) Rising political risks in Germany and Italy - AKK is set to announce selection process for the CDU leader on 24 February after Sunday’s Hamburg regional election and an early 2021 general election in Germany now seems likely. In Italy, the coalition government is at risk, but snap elections still very unlikely - the small coalition party Italia Viva led by former PM Renzi is threatening to leave government ranks and the coalition government led by PM Conte looks increasingly shaky, but incentives for the majority of MPs are still overwhelmingly stacked against a snap election. Bottom Line - Drivers 1, 2, 3 & 4 are interlinked and would likely recede if the Coronavirus outlook improves.   

 

GBP: Sentiment undermined on possible UK budget delay and EU – UK barbs about future trade talks

  • GBP: Sterling’s underperformance overnight is linked to 2 items – (1) UK budget – government hints the upcoming budget scheduled for March 11 may be delayed, after Chancellor Javid resigns Friday. More importantly, large scale fiscal easing may be delayed well into H2’20 or even H1’21. (2) Brexit – Talk that PM Johnson’s chief EU trade negotiator David Frost will send an uncompromising message to Brussels diplomats in his first speech on trade talks. Meanwhile France’s Foreign Minister Le Drian warns UK and EU “are going to rip each other apart” in forthcoming trade talks.          

 

Commodity Bloc: Week Ahead – Australia & Canada    

  • AUD & CAD: January Labor Force: Citi employment forecast; -1.3k, Previous; 28.9k; Citi unemployment rate forecast; 5.2%, Previous; 5.1%; Citi participation rate forecast; 66%, Previous; 66% - there could be some noise in the Australian January labor force survey because of the bushfires across South-East Australia. A number of important data releases (including retail sales) will put the final touches on Citi analysts estimate for Canada’s Q4 real GDP growth (Citi currently at 0.8%). Headline CPI should remain at 2.2%YoY, but core measures are key.        

 

Asia EM: Singapore MAS’s easing now Citi analysts’ base case       

  • SGD: Singapore’s 4Q19 final GDP is revised up to 1% YoY, 0.6% QoQ SAAR (Citi/Consensus/AE: 0.8% YoY, 0.1% QoQ SAAR) but MTI lowers 2020 GDP forecast to -0.5 – 1.5% (vs 0.5 – 2.5% previously). This anticipates negative spillovers from COVID-19. Citi analysts now see Singapore’s 2020 GDP in the 0.5 – 1% range (previous: 1.3%). MAS slope reduction now the Citi analysts base case - With the official forecast range lowered more than expected to include the possibility of a full year recession, a key hurdle for MAS to flatten the slope in April is now cleared. The second criteria - broadening of growth weakness beyond manufacturing  - has also been met. Therefore, MAS slope flattening in April is now the Citi analyst base case – USDSGD currently trades 60 pips below the mid band – now seen to be discounting a MAS easing at the April meeting. 

 

This is an extract from the Daily Currency Update, dated February 18, 2020. Please approach a Citigold Relationship Manager if you would like more information.

 

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Marketing and distribution of Investment Funds to clients in Bahrain requires Notification to the Central Bank of Bahrain and will be limited to UHNWI as defined below. Minimum investment subscription criteria will apply for products for all subscriptions for Bahrain domiciled clients.

Ultra-high net worth investors are:

(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 25 million or more

(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 25 million; or

(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

GLOBAL CONSUMER BANK (ASIA PACIFIC AND EMEA):

“Citi analysts” refer to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”), Citi Global Wealth Investments (“CGWI”) and voting members of the Citi Global Investment Committee.
Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document.

The information in this document has been obtained from reports issued by CGMI and CGWI. Such information is based on sources CGMI and CGWI believe to be reliable. CGMI and CGWI, however, do not guarantee its accuracy and it may
be incomplete or condensed. All opinions and estimates constitute CGMI and CGWI's judgment as of the date of the report and are subject to change without notice. This document is for general information purposes only and is not intended
as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware
of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance, prices can go up or down. Investment products are not available to US persons. Investors should be aware
that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work, it is his/her responsibility
to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible
for advising an investor on the laws pertaining to his/her transaction.

Citi Research (CR) is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

For more information, please refer to https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.

MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs,
and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong
and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under
the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom
it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making
an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated
with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for
themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from Its use.

CSL does not provide discretionary portfolio management services.

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients.

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

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