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June FOMC - hawkish upward revisions to dots, taper into view

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June FOMC - hawkish upward revisions to dots, taper into view                 

  • USD: Citi analysts see the updated Fed projections overnight as more hawkish than expected, with the median dot implying two 25bp hikes by the end of 2023 versus Citi analysts’ base case of the median 2023 dot to move to only one 25bp hike. Chair Powell embraces the more hawkish projections by twice referencing that the conditions for lift-off will be met sooner than expected. Citi analysts base case remains for a first rate hike in December 2022. On tapering, Chair Powell characterizes the meeting as “talking about talking about” tapering and indicates that “substantial further progress” is “a ways away” (perhaps a slight hawkish shift from “some time”) but progress is continuing and will be evaluated at “upcoming meetings.” Citi analysts continue to expect a taper announcement in September and with a $15bln/month decrease in purchases beginning in December.              

  • USD: Fed forecasts see US core inflation revised up to 3.0% in 2021 while both 2022 and 2023 projections both now stand at 2.1% showing a multi-year overshoot. Chair Powell still characterizes higher inflation as “transitory” but, in an important shift in rhetoric, acknowledges the risk of higher inflation as demand rebounds faster than supply. Chair Powell also emphasizes that he expects labor shortages to normalize. But unemployment rate projections are nudged down, despite weaker job growth. Overall changes to the Fed statement though are unsurprising, with slight adjustments to reflect the improved public health outlook.        

Data releases overnight – China’s factory output, retail sales and FAI miss expectations in May but still well supported 

  • CNH: China’s May industrial production rises 8.8% Y/Y, slower than the 9.8% gain in April and lower than consensus for a 9.0% Y/Y gain. However, consensus expected some moderation due to softer export orders, higher input costs for factories and tighter environmental restrictions on heavy industry.       
  • CNH: China’s retail sales rise 12.4% Y/Y in May, weaker than consensus looking for 13.6% Y/Y growth and down from the 17.7% jump seen in April. The 2-year average growth for retail sales though stands at 4.5% in May, faster than 4.3% in April, in a sign sales are gradually rebounding.  
  • CNH: China’s fixed asset investment rises 15.4% in the first five months from the same period a year earlier, versus consensus looking for a 16.9% rise, but slowing from January-April's 19.9% gain. Notably though, the two-year average growth in manufacturing investment turns positive in May.      

 

Data releases overnight (continued) - UK CPI – a robust rebound with further upside likely; Canadian core CPI measures still rising in May 

  • GBP: Headline UK CPI inflation accelerates to 2.1% MM (Citi, consensus and BoE forecast 1.8%) in May. This is the first time UK inflation is above target since July 2019 – if only marginally. The BoE only expected this for late 2021. Core CPI also rises to 2.0% YY (Citi 1.4%, consensus 1.5%). Headline CPI is now 0.3pp above the BoE's May forecast with further overshoots likely. Underlying price growth is even stronger than it looks – having disappointed in April, UK core CPI data has overshot Citi analysts expectations and suggests strong ongoing pricing pressures with goods prices likely to rise further as input cost pressures still remain at all-time highs and inventories depressed. 
  • CAD: Canadian headline CPI rises 0.5%MoM in May, stronger than consensus for at 0.4%. The Y/Y measure rises to 3.6% while the core inflation measures are also up across the board, with the CPI-common measure increasing to 1.8%, the CPI-median measure rising to 2.4% and the CPI-trim measure up to 2.7%. Elevated core inflation measures, which now average 2.3%, can potentially catalyze a more hawkish shift from the BoC. Deputy Governor Lane last week noted that “inflation above target in a more persistent manner” would have “implications for our outlook and monetary policy going forward”. Citi analysts see potential for core inflation to see a sustained return to 2% sooner than the BoC currently expects and would not be surprised by another hawkish shift from the BoC, with more clarity around when a first rate hike might be warranted.  

 

Data/ events for the remainder of this week   

  • CHF: SNB Policy Rate Forecast: -0.75% Prior: -0.75% - SNB will likely acknowledge that the 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. Citi analysts expect the furthest out Swiss inflation forecast (Q1 2024) at 0.6%-0.7%. 
  • GBP: UK Retail Sales, May Forecast: 1.3% MM 28.5% YY Prior: 9.2% MM, 42.4% YY; Ex Auto Fuels, May Forecast: 0.9% MM, 25.9% YY Prior: 9.0% MM, 37.7% YY – Citi analysts expect retail sales growth to slow sharply in May as the surge in durable and semi-durable spending in April has likely eased in the weeks since – weighing on overall growth. Citi analysts expect these data to moderate over the coming months as the rotation towards consumer goods evident during the pandemic begins to unwind somewhat. However, the overall level is likely to remain relatively resilient.     
  • AUD: Australia’s May jobs report a key input to the RBA decision in July: 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% - the May labor force survey should provide a cleaner reading on the labor market after the end of JobKeeper in March. The data is important because it will be the crucial data-point ahead of RBA’s decisions around its QE programs in July - a strong reading in May could mean the RBA may not roll forward to purchasing the Nov-24 bond. Citi analysts also maintain the RBA is likely to opt for a flexible LSAP program where it will purchase “up to” $AU100bn. This would give it flexibility to slow asset purchases if the economy continues to outperform.         

                 

This is an extract from the Daily Currency Update, dated June 17, 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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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
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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.

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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
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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
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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.

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