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De-confinement now a popular topic – but is everyone on the same page?

-->De-confinement now a popular topic – but is everyone on the same page?  President Trump closes in on plan to reopen US but state governors have differing views     
  • USD: In US, NIAID’s Dr. Fauci this week says parts of US may be ready in May to ease emergency measures. Meanwhile, President Trump at a White House briefing on Monday indicates his administration would issue guidance within days for governors who want to begin easing social-distancing practices, saying “We’re very close to completing a plan to open our country. Hopefully, even ahead of schedule….We will soon finalize new and very important guidelines to give governors the information they need to open their states.”
  • USD: Focus now turns to potential conflict with State Governors as NY Governor Cuomo announces a geographical coalition of states - NY, New Jersey, Connecticut, Rhode Island, Delaware and Pennsylvania – will come together to “open that valve on the economic activity” and “do it carefully do it slowly and do it intelligently.”  On Trump’s remarks that it is up to the President to decide reopening, Cuomo says - “He left it to states to close down… if it wasn’t the federal government’s authority to close the economy, why is it their responsibility to open it?”
  • USD: California’s Governor also announces a similar coalition with Washington and lays out a concrete framework for reopening - includes meeting capacity testing and contact-tracing goals, protecting the vulnerable, having sufficient hospital capacity, engaging academia on therapeutics, guidelines for businesses to practice social distancing, capacity to reinstate controls, expanded guidelines for restaurant diners and most likely keeping a ban on large gatherings though Summer 2020.       


European lockdowns – Citi analysts do not see return to social, economic normality until May end (at least)  

  • EUR: France and Italy extend lockdowns, with the UK likely to follow but Spain lifts “hibernation”- France extends its lockdown to 11 May, Italy extends its lockdown until 3 May. In Spain, some non-essential activities cautiously re-open following a 15-day economic ‘hibernation’, mainly construction and manufacturing firms. Citi analysts however stress that any optimism to return to social and economic normality until the end of May seems to be out of place.


EU fiscal response – puts a floor under EZ inflation expectations and EUR for now but divisions on usage may undermine medium term sentiment                               

  • EUR: EU’s EUR500bn joint fiscal response unveiled last week that supports governments (through ESM funding support), firms (through EIB loan guarantees) and households (through the Commission's SURE program) together with the ECB’s efforts to  contain sovereign spreads appears sufficient to contain breakup risks and put a floor under euro zone longer term inflation expectations (and EUR) for now. However, cracks are appearing on individual countries’ willingness to utilize the measures that could undermine medium term sentiment in Highlights of dissension include (1) Italian government ruling out a bailout from European Stability Mechanism (ESM), pledges new deficit-increasing stimulus as borrowing from ESM remains a difficult issue in Italian politics; (2) Spain’s Finance Minister saying ESM is only a safety net, seen as last resort in case of government bond market distress rather than a tool to finance fiscal stimulus. Citi analysts see “the agreement” on availability of ESM funds as largely academic as (1) it is limited to financing of direct health expenditures, and (2) governments of large countries such as Italy and Spain are unlikely to make use of the ESM.    


Overnight data: China - trade data beats estimates, adding to the positive credit surge reported earlier in the week 

  • CNY: China March trade data comes in better than expected with imports up 2.4%YoY in yuan terms (consensus -7%) while exports drop -3.5%YoY vs -12.8% (consensus). While overall imports and exports to the US in March fall (-1.3%YoY and -23.6%YoY respectively), Citi analysts note that overall in Q1, China imports of agricultural goods are up 1.1x from the US. Elsewhere, Q1 trade with the European Union and Japan drops 10.4% and 8.1% respectively while trade with the 10 ASEAN countries in Q1 rises by 6.1% making the group China’s largest trading partner in Q1’20, accounting for 15.1% of China’s total global trade volume in yuan terms.     


Week Ahead – US, Australia, Canada and China

  • USD: US earnings season – Citi analysts’ Earnings Revision Index (ERI), which tracks the number of net EPS upgrades/downgrades has collapsed below GFC low at -75% - note this is lowest on record, indicating for every EPS upgrade, there have been 7 downgrades. The week also sees US retail sales data for March tonight Citi analysts expect the control group could surge even as total sales contract based on COVID-19 related changes in consumption. Thursday’s initial jobless claims will likely remain high but have probably peaked. 
  • Commodity Bloc: (1) Australian March jobs: Citi employment forecast; -41.5k, Previous; 26.7k; Citi unemployment rate forecast; 5.4 %, Previous; 5.1%; (2) BoC Board meeting - Citi analysts do not expect any new programs or measures announced though this remains a possibility. More important will be updated forecasts in the MPR and BoC’[s assessment of the outlook for recovery. 
  • Asia EM - China is still yet to release March industrial production, retail sales and FAI and Q1 GDP - Citi analysts expect Q1 GDP to come in at -8.0%YoY vs -5.9%YoY consensus


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

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