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June FOMC board meeting this week - preview

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June FOMC board meeting this week - preview               

  • USD: Another potentially pivotal data release (stronger-than-expected US core CPI inflation) has come and gone with a counterintuitive market response – 10Yr Treasuries yields falling to their lowest levels since early March on Friday. With this backdrop, Citi analysts see hawkish risks from upcoming Fed communications, including this week’s FOMC meeting. The team sees three items dominating the meeting – (1) the 2023 median “dot” will likely be revised up to imply one hike by the end of the year. It takes only 2 dots moving higher for dots to imply ½ a 25bp hike and 3 dots to imply a full hike; (2) inflation expectations moving higher - mechanically it is hard to forecast Q4/Q4 core PCE inflation at the end of 2021 below 2.5% (Citi analysts forecast above 3%, but Fed officials tend to be conservative in adjusting these). Fed officials will be quick to point out that some of this strength is due to base effects, making 2022 projections potentially more interesting. While most Fed officials will still likely pencil in a significant step-down in inflation next year, the median is likely to, if anything, move higher; (3) at least some talking about tapering - after weeks of “talking about talking about” tapering, a signal in the Fed Minutes that the discussion would be forthcoming and Vice-Chair Clarida associating himself with those Minutes, Citi analysts would be surprised not to see at least some discussion of the next policy move.            

  • USD: That said, it may be too early to expect a clear signal that the economy is headed toward “substantial further progress” and tapering of asset purchases. However, officials may be ready to admit the economy is making “good progress” and that it may be becoming time to more fully discuss how a taper should play out.     
  • USD: Citi analysts think that the recent move lower in UST yields is likely a signal of increased market confidence that the Fed will keep monetary policy easy, rather than a significant revision of expectations regarding how transitory (or not) stronger inflation will be. However, while much of the strength in prices may indeed be transitory, Citi analysts see some signs of more persistent inflationary pressure building in categories like shelter. Also, while job growth has surprised to the downside twice in two months – this is likely mainly due to an (inflationary) shortage of labor, rather than a lack of demand. All this brings back the idea that it is not so much the data itself, but the market’s perception of how central bankers interpret that data that is driving bond yields lower. This implies that subtle shifts in communication and policy orientation have the potential to have an outsized influence, raising the importance of this week’s FOMC meeting.      

 

UK: Some minor short term headwinds unlikely to alter the positive fundamental backdrop for sterling

  • GBP: A stall in cable’s rally this week as hopes of lifting all social distancing rules in the UK on June 21 appear to have receded, with most expecting re-opening to be delayed by four weeks. There also seems to be a further escalation between UK and EU over Northern Ireland – with the 30 June deadline for alleviations on goods trade approaching, UK government accuses EU of “not respecting” UK’s territorial integrity. Risk of UK unilateral actions and EU retaliation appears to be rising as the next formal meeting between UK PM Johnson and EU leaders is only scheduled for November.   
  • GBP: However, neither of these represents more than a short term blip to sterling’s bullish sentiment – a 4 week delay in UK’s re-opening still puts it well ahead of its peers while problems over Northern Ireland are well known and markets seem well prepared to digest any intermittent friction  arising between UK and EU, even if risk of UK unilateral actions and EU retaliation appears to be rising.  

 

Week Ahead 

  • USD: Fed FOMC meeting – refer to the above piece “June FOMC board meeting this week.
  • USD: Retail Sales MoM – Citi: -1.1%, median: -0.4%, prior: 0.0%; Retail Sales ex Auto – Citi: 0.4%, median: 0.6%, prior: -0.8%; Retail Sales ex Auto, Gas – Citi: 0.1%, median: 1.0%, prior: -0.8%; Retail Sales Control Group – Citi: -0.6%, median: 0.6%, prior: -1.5%  - moderation in control group sales would line up with some easing in goods spending after a stimulus-related boost in March and would not be a concerning sign for underlying demand. 
  • USD: PPI Final Demand MoM – Citi: 0.4%, median: 0.4%, prior: 0.6%; PPI Final Demand YoY – Citi: 6.0%, median: 6.2%, prior: 6.2%; PPI ex Food, Energy MoM – Citi: 0.3%, median: 0.5%, prior: 0.7%; PPI ex Food, Energy YoY – Citi: 4.4%, median: 4.8%, prior: 4.1%; PPI ex Food, Energy, Trade Services MoM – Citi: 0.5%, median: 0.4%, prior: 0.7% - a more moderate increase compared to recent months, but further upside to goods PPI could signal further goods price gains in CPI in coming months. 
  • USD: Industrial Production – Citi: 0.7%, median: 0.6%, prior: 0.5%; Manufacturing Production – Citi: 0.5%, median: 0.7%, prior: 0.4%; Capacity Utilization – Citi: 75.1%, median: 75.1%, prior: 74.6% - while total manufacturing production has mostly returned to pre-COVID levels, further upside could be limited in the near term as various commodity and labor inputs are constrained.   
  • CHF: SNB Policy Rate Forecast: -0.75% Prior: -0.75% - Franc remains “highly valued”, negative interest rates and FX interventions remain necessary and inflation and growth forecasts will probably remain largely unchanged at cautious levels.  
  • AUD: Australia’s May Labor Force Survey: Citi employment forecast; +39.1k, Previous; -30.6k; Citi unemployment rate forecast; 5.5%, Previous; 5.5%; Citi participation rate forecast; 66.1%, Previous; 66.0% - May LFS is important because it will be the crucial data-point ahead of the RBA’s decisions around its QE programs in July.            

                 

This is an extract from the Daily Currency Update, dated June 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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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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