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Choppy waters ultimately sees resumption of USD weakness

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Choppy waters ultimately sees resumption of USD weakness               

  • USD: Choppy waters overnight as USD price action see-saws with the earlier sessions (Asia and London) seeing greenback buying only to struggle later in the NY session and ultimately end up with a weaker finish. There are effectively 2 drivers of the USD selloff in the NY session overnight – (1) Gains in CNH versus USD following positive comments from the PBoC monetary policy department head Sun Guofeng that the appreciation of RMB earlier this month reflects China’s good growth momentum. The sentiment shift represents a turnaround from earlier in the week when the PBoC cut the FX reserve requirements for banks’ forward FX sales business from 20% to zero to stem the pace of CNH appreciation. (2) US fiscal stimulus package unlikely to pass this side of the election - effectively confirmed by Treasury Secretary Mnuchin overnight who says that getting something done before the election is difficult.             

 

Singapore’s MAS stays accommodative despite GDP rebound        

  • SGD: In its meeting yesterday, Singapore’s MAS stands pat as 3Q20 GDP rebounds +7.9% QoQ SA, -7% YoY (2Q: -13.2% QoQ SA, -13.3% YoY). The decision is in line with consensus and Citi analysts. The MAS reiterates 2020 growth at between -7 to -5% (Citi: -7%), turning positive in 2021 but with the negative output gap to narrow only slowly - beyond the immediate rebound in 3Q due to the resumption of economic activities both externally and domestically. Citi analysts also expect Singapore’s sequential growth to slow, reflecting localized lockdowns in trading partners, and soft job market conditions domestically with the negative output gap expected to narrow only “slowly” in 2021 on above-trend growth from a low base. Thus the GDP rebound from depressed levels seems to be downplayed by the MAS in its statement yesterday with an emphasis instead on disinflationary impulses from slack.    
  • SGD: MAS raises its 2020 core CPI forecast to -0.5 - 0% (previous -1 - 0%), with 2021 at 0-1% signaling policy to stay accommodative, but stopping short of signaling readiness to ease - with core CPI seen “remaining well below its long term average”, MAS notes that accommodative policy will likely remain appropriate “for some time”. But together with the absence of characterization of a “stable” monetary policy stance, MAS may not be averse to a weaker NEER within the band, though this needs to be driven by the market. Bottom Line - Citi analysts do not completely rule out MAS easing in April 2021, especially if uptick in core CPI is weaker than expected amid the absence of emphasis on fiscal policy  

 

Data/ event releases overnight

  • USD: PPI keeps core PCE on track to overshoot – US producer prices rise a bit more than expected in September with overall final demand, and core measures excluding food, energy and trade both up 0.4%MoM. Citi analysts project 0.135%MoM and 1.7%YoY for core PCE inflation in September based on elements of already released CPI and PPI and which also likely leaves core PCE inflation on track to hit around 2.5%YoY in the US spring in 2021.  
  • EUR: 4th successive uptick in euro area industrial production (IP) in August, but upward momentum likely fading – +0.7% MM (Mkt. 0.8% MM, Citi 0.5%) in August, but still down 7.2% YY (largely unchanged from -7.1% YY in July). Intermediate goods lead the rebound, but Citi analysts are paying close attention to the much more muted capital goods momentum.  

 

Data releases for today/ Friday

  • USD: Retail sales, industrial production and University of Michigan consumer confidence - Retail Sales – Citi: 1.2%, median: 0.8%, prior: 0.6%, Retail Sales ex Auto – Citi: 0.3%, median: 0.4%, prior: 0.7%, Retail Sales ex Auto, Gas – Citi: 0.4%, median: 0.5%, prior: 0.7%, Retail Sales Control Group – Citi: 0.2%, median: 0.3%, prior: -0.1% - With consumption strong in recent months and continuing to drive the Q3 rebound in GDP, Citi analysts expect another solid increase in retail sales in September partly due to another strong increase in auto sales. Sales in the retail control group should rise modestly following a slight decline in August.
  • USD: Industrial Production – Citi: 0.6%, median: 0.6%, prior: 0.4%, Manufacturing Production – Citi: 0.7%, median: 0.7%, prior: 1.0%, Capacity Utilization – Citi: 71.8%, median: 71.9%, prior: 71.4% - Industrial production should rise 0.6%MoM with a slightly stronger 0.7% increase in the largest subset of manufacturing production. Citi analysts expect largely across the board moderate increases in production across most manufacturing subsectors, with a renewed increase in auto production after a modest decline in August.
  • USD: University of Michigan Consumer Sentiment – Citi: 79.8, median: 80.5, prior: 80.4, U of Michigan 1y Inflation Expectation – Citi: 2.6%, median: NA, prior: 2.6% - Citi analysts expect a modest pullback in the University of Michigan consumer sentiment indicator, from 80.4 in September to 79.8 in the preliminary October reading. The decline in University of Michigan consumer sentiment index has been largely led by a drop in the current conditions index as opposed to the expectations components, potentially reflecting the still-high virus case counts and political volatility and fiscal stimulus uncertainty in the US.
  • AUD: Australian jobs data: Citi employment forecast; -25k, Previous; 111k, Citi unemployment rate forecast; 6.9%, Previous; 6.8%, Citi participation rate forecast; 64.7%, Previous; 64.8% - Citi analysts expect continued job losses in Victoria to offset job increases elsewhere. However, the labor market has surprised on the upside, so it won’t be entirely inconsistent to get a better outcome on the employment count in September. The unemployment rate though is likely to pick-up despite a slight fall in participation rate.      

 

This is is an extract from the Daily Currency Update, dated October 15, 2020. Please approach a Citigold Relationship Manager if you would like more information.

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