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Japan elections – implications for JPY?

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JPY: There now appear to be 3 candidates running in the election (due Sep 29) for the presidency of Japan’s LDP with the winner set to become Japan’s next PM - Taro Kono, Fumio Kishida and Sanae Takaichi. Relevant for JPY is the outlook for monetary and (especially) fiscal policy under each candidate.      

  • Taro Kono - In his press briefing on September 10, Kono talks about restarting Japan’s nuclear power plants. His views on economic policies though tends to be abstract, leaning more towards micro than macro. On macroeconomic policy, his only reference is towards preferential measures for corporate taxes for companies that lift labor’s share of value-add. Overall, Kono looks to represent more of a continuation of ex-PM Suga’s government than Abenomics which may dampen enthusiasm for Japanese stocks and may lead to more positive sentiment in JPY (as a safe haven flow).     

  • Fumio Kishida – seems more pro-Abenomics but wants to correct the widening disparities caused by Abenomics. Such measures would include restructuring the environment for Japanese public companies where shareholders and managers are currently seen having a monopoly on the proceeds of growth towards sharing the rewards with employees, local communities, and other stakeholders. Such a move though would mark a shift away from Abenomics and could potentially dampen rather than boost sentiment in Japanese stocks which may encourage a bid in Yen (on safe haven flows). Kishida’s views on fiscal policy are also mixed. On the one hand, he would opt for a more expansionary fiscal stance than Kono when drafting additional economic measures in autumn while in a press conference on September 8, he indicates that “finances are the basis of a country’s credibility and I will not waver in my pursuit of fiscal reconstruction.” However, Citi analysts believe that the LDP as a whole is likely to have more influence on Kishida administration’s policies than just Kishida himself which means a platform closer to Abenomics. Overall, this is likely positive for Japanese stocks/ negative JPY at the margin.   

  • Sanae Takaichi: Abenomics continuity - she shares ex-PM Abe’s conservative views and her economic policy ideas seem to have a strong element of continuity with Abenomics (much more so than Kishida) which she herself refers to this as the “new Abenomics”. Her economic policy has 3 pillars – (1) a further sharp easing in monetary policy, (2) strategic fiscal stimulus confined to emergency situations, and (3) bold investment in crisis management and growth (investing in areas such as semiconductors and AI to promote growth as well as disaster response). She also favors putting primary fiscal balances at the national and regional level into the black on hold until the 2% inflation target is reached. A more aggressive expansionary fiscal stance and radical monetary easing likely calls for a sharply weaker Yen.  

 

Data releases overnight

  • USD: US CPI inflation – transitory weakness after transitory strength?  US core CPI inflation comes in weaker than expected in August, increasing just 0.10% relative to Citi analysts’ expectation for 0.24%MoM and consensus at 0.3%MoM. This leaves the Y/Y core reading at 4.0%, down from 4.3% and relative to 4.2% expected. Shelter prices, aside from hotels, though are solid, with owner’s equivalent rent up .25%MoM and direct rents up 0.31%MoM. But despite the weaker-than-expected 0.10%MoM core CPI reading, Citi analysts continue to see signs that inflationary pressure will be more persistent than Fed officials or markets expect and the reading should have little bearing on Fed officials’ decision making around tapering of asset purchases. In particular, shelter prices are a key source of upside risk given the rise in house prices and normalization of rents in cities and  the solid readings on direct and imputed rents are at least consistent with underlying inflation that is around target. Elements of PPI and CPI suggest a solid 0.26%MoM and 3.6%YoY core PCE reading for August, to be released October 1 (after the September 22nd FOMC).  
  • GBP: UK labor market continues to rebound but slack remains - UK labor market shows continued signs of a strong rebound in the three months to July with LFS employment printing at 183k (Consensus 199k, Citi 147k) and is now only down 750k from pre-pandemic levels. Labor demand remains very strong in the three months to August with vacancies on a three-month basis above 1 million for the first time on record. Meanwhile, LFS unemployment prints in line with consensus at 4.6% (Consensus 4.6%, Citi 4.5%) but broader measures of labor market slack remain elevated, with inactivity still 600k above Jan-20 levels. Alongside higher headline unemployment and higher rates of inactivity, recent BICs data suggest around 1.3 million workers remained at least partially furloughed in the month of August. As a result, Citi analysts think any narrative of a full ‘employment recovery’ should be treated with caution for now.  
  • AUD: Business conditions have held up in August despite the lockdowns; all eyes set on reopening - despite ongoing lockdowns, Australian business confidence and conditions improve. At -5 points, business confidence remains in negative territory but the August result is a small gain on July’s -7 points due to an accelerated vaccine rollout. Meanwhile, business conditions expand from +10 to +14 points. The result is encouraging with confidence and measures of business conditions far better than during the peak lockdown period last year. However, near-term indicators for employment weaken, easing from 11 to 9 points. Keep an eye on inflation - debate around inflation has subsided following the lockdowns across Q3 and unlikely to return this year. However, if inflation pressures do arise in the near-term, it will likely be in the form of supply-side issues that have been prevalent globally. Overall, despite the drop in economic activity, inflation risks remain skewed to the upside.    

 

Week Ahead         

  • USD: University of Michigan Consumer Sentiment – Citi: 73.9, median: 72.0, prior: 70.3; University of Michigan Inflation Expectations 1y – Citi: 4.7%, median: NA, prior: 4.6% - Citi analysts expect a moderate rebound in the University of Michigan consumer sentiment index to 73.9 in September after a sharp drop in confidence to 70.3 in August sparked by concerns of a renewed slowdown in activity. The drop in sentiment is likely in part related to elevated prices of many consumer goods. Inflation expectations components of the University of Michigan survey will also continue to be particularly important for the outlook for inflation. Citi analysts expect the 1-year ahead measure to rise slightly back to 4.7% although the 5-10 year expectations will be more important for the Fed.          

  • USD: US August Retail Sales – Citi: -1.4%, median: -0.8%, prior: -1.1%; Retail Sales ex Auto – Citi: 0.1%, median: -0.2%, prior: -0.4%; Retail Sales ex Auto, Gas – Citi: 0.2%, median: -0.3%, prior: -0.7%; Retail Sales Control Group – Citi: 0.2%, median: -0.2%, prior: -1.0% - total retail sales should decline by -1.4%MoM in August with weakness led by auto sales while control group sales should fall -0.2% after a 1% decline in July. Over coming months, the team expects a further pullback in the very-elevated level of goods spending as services continue to normalize.  

  • NZD: NZ Q2 GDP Citi QoQ forecast; 1.0%, Previous; 1.6%; Citi YoY forecast; 15.9%, Previous; 2.4% - strong contribution from the construction sector thanks to the hot housing market is expected to continue driving the solid growth momentum in NZ in Q2. Elsewhere, consumption will remain a key driver of growth, and services-orientated industries are likely to benefit from improved sentiment as the economy was open across Q2. Overall, the solid growth trajectory of NZ’s economy prior to lockdowns should confirm that the RBNZ will probably maintain its hawkish rhetoric in the near term. However, Citi analysts still believe that the odds of a sharp tightening cycle are still low and the team only pencils in a 25bps rate hike in October.  

  • AUD: Australian August Labor Force Survey; Citi employment change forecast;-175k, Previous; +2.2k, Citi unemployment rate forecast; 5.1%, Previous; 4.6%, Citi participation rate change forecast; 65.4%, Previous; 66.0% - the reference period for the August Labor Force Survey will encapsulate the lockdowns across NSW and VIC. Consequently, job growth is expected to decline significantly across the two states. Discounting the noisy monthly data, the two metrics more relevant for the state of the labor market are the number of hours worked across the economy, and the number of people employed but working less or zero hours for economic reasons.  Citi analysts expect the unemployment rate to peak at around 5.4% later in the year as the economy reopens.  

  • CAD: Canadian CPI NSA MoM (Aug) - Citi: 0.1%, median: 0.1%, prior: 0.6%; CPI YoY – Citi: 4.0%, median: 3.9%, prior: 3.7% - Citi analysts  expect a 0.1% increase in headline CPI in August following a strong 0.6% jump in July. While this would be a more moderate increase in prices, it would be relatively stronger than the usual non-seasonally-adjusted price declines that typically happen in H2. However, a number of survey measures, including inflation expectations and the share of firms indicating difficulty meeting demand, suggest upside risks for core CPI. This may make BoC increasingly uncomfortable with a number of months of elevated core inflation. 

  • CNH: China August Retail Sales (%YoY): Citi 4.0, Consensus 7.0, Prior 8.5 - retail sales growth might have decelerated to around 4%YoY in August. The Delta variant outbreak and the resultant tighter prevention measures should have affected auto sales and broader offline sales as well as catering revenue. As a result, Citi analysts expect a visibly weaker underlying momentum of retail growth. 

  • CNH: China August Industrial Production (%YoY): Citi 5.8, Consensus 5.8, Previous 6.4 - IP might grow 5.8%YoY in August — PMI index of production edged down by -0.1pp to 50.9 in August though still a solid print despite disruptions from Delta and flooding in some parts of China as well as continued shortage of chips.

  • CNH: China August Fixed Assets Ex Rural YTD (%YoY): Citi 9.1, Consensus 9.1, Previous 10.3 - FAI growth might post 9.1%YoY Ytd in August — despite unfavorable weather conditions, PMI gained 3ppts to 60.5 for construction in August, likely supported by an infrastructure investment recovery. The industrial capex upcycle should still be continuing but property investment might have cooled off further as curb measures exerted their impact.   

 

This is an extract from the Daily Currency Update, dated September 15, 2021. Please approach a Citigold Relationship Manager if you would like more information. For the latest updated CitiFX house views and strategy (updated every Monday) please click here - 

 https://asia.citi.com/wealthinsights/citifx-house-views-and-strategy

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In Jersey, this document is communicated by Citibank N.A., Jersey Branch which has its registered address at PO Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citibank N.A. Jersey Branch is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped
at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the States of Jersey website www.gov.je/dcs, or on request.

Citi may offer, issue, distribute or provide other services in relation to certain unsecured financial instruments issued or entered into by BRRD Entities (i.e., EU entities within the scope of Directive 2014/59/EU (the BRRD), including EU credit institutions, certain EU investment firms and / or their EU subsidiaries or parents) (BRRD Financial Instruments).

In various jurisdictions (including, without limitation, the European Union and the United States) national authorities have certain powers to manage and resolve banks, broker dealers and other financial institutions (including, but not limited to, Citi) when they are failing or likely to fail. There is a risk that the use, or anticipated use, of such powers, or the manner in which they are exercised, may materially adversely affect (i) your rights under certain types of unsecured financial instruments (including, without limitation, BRRD Financial Instruments), (ii) the value, volatility or liquidity of certain unsecured financial instruments (including, without limitation, BRRD Financial Instruments) that you hold and / or (iii) the ability of an institution (including, without limitation, a BRRD Entity) to satisfy any liabilities or obligations it has to you. In the event of resolution, the value of BRRD Financial Instruments may be reduced to zero and or liabilities may be converted into ordinary shares or other instruments of ownership for the purposes of stabilisation and loss absorption. The terms of existing BRRD Financial Instruments (e.g., date of maturity or interest rates payable) could be altered and payments could be suspended.

There can be no assurance that the use of any BRRD resolution tools or powers by the BRRD Resolution Authority or the manner in which they are exercised will not materially adversely affect your rights as a holder of BRRD Financial Instruments, the market value of any investment you may have in BRRD Financial Instruments and/or a BRRD Entity’s ability to satisfy any liabilities or obligations it has to you. You may have a right to compensation from the relevant authorities if the exercise of such resolution powers results in less favourable treatment for you than the treatment that you would have received under normal insolvency proceedings. By accepting any services from Citi, you confirm that you are aware of these risks.

In Canada, Citi Private Bank is a division of Citibank Canada, a Schedule II Canadian chartered bank. References herein to Citi Private Bank and its activities in Canada relate solely to Citibank Canada and do not refer to any affiliates or subsidiaries of Citibank Canada operating in Canada. Certain investment products are made available through Citibank Canada Investment Funds Limited (“CCIFL”), a wholly owned subsidiary of Citibank Canada. Investment Products are subject to investment risk, including possible loss of principal amount invested. Investment Products are not insured by the CDIC, FDIC or depository insurance regime of any jurisdiction and are not guaranteed by Citigroup or any affiliate thereof.

This document is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities to any person in any jurisdiction. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially.

This document is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities to any person in any jurisdiction. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially.

Citigroup, its affiliates and any of the officers, directors, employees, representatives or agents shall not be held liable for any direct, indirect, incidental, special, or consequential damages, including loss of profits, arising out of the use of information contained herein, including through errors whether caused by negligence or otherwise.

CCIFL is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association of Canada (“MFDA”); consequently, clients of CCIFL will not have available to them investor protection benefits that would otherwise derive from membership of CCIFL in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA.

Bahrain: IN BAHRAIN, CITI PRIVATE BANK OPERATES UNDER SPECIFIC APPROVAL ISSUED ON THE BASIS OF CITIBANK, N.A., BAHRAIN BRANCH’S BANKING LICENSE

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.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited
is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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