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Markets move to pricing an US election Biden victory as their main scenario - USD slump starting to extend

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-->Markets move to pricing an US election Biden victory as their main scenario - USD slump starting to extend            

 

  • USD: A likely USD negative: polling now moving to a Biden win - post-debate polling shows a larger national lead for former VP Biden with a number of surveys attaching a 75 – 85% probability of a Biden victory at the presidential election on November 3. Looking at the details, in terms of electorate issues, polling results highlight that President Trump seems to have an advantage on economic policy while Biden takes a lead on other issues including management of the coronavirus while issues like law enforcement and the Supreme Court are more tightly contested. Voter preferences remain strong - only small shares of either candidate’s supporters say there is a chance they will change their mind while a vast majority of voters (90%) say they plan to vote in the coming month with only 7% saying they have already cast their ballot.                        

  • USD: But do not rule out a contested election outcome: also a likely USD negative – Biden’s lead notwithstanding, polling surveys show he still likely lags Trump’s strong backing with his voter bloc. This may suggest a contested election result also remains possible and which may result in prolonged uncertainty well after November 3 (also likely USD negative). Much also depends on future debates - the second Presidential debate was scheduled for October 15th but it seems President Trump does not plan to participate. The final debate is scheduled for October 22. Reports suggest that negotiations between the campaigns on future debates is ongoing. Citi analysts expect at least one, if not two, further debates will be held before November 3.           
  • USD: Trump’s on-again, off-again to now wanting a more comprehensive Covid fiscal stimulus deal unlikely to pass - USD selling is ubiquitous in Friday’s session as Politico’s Jake Sherman reports the White House “is now completely set on striking a Covid stimulus deal with House Speaker Pelosi. They expect working all next week on getting a deal but no guarantees it goes anywhere in Senate…”. News reports Friday say Treasury Secretary Mnuchin is preparing to present House Speaker Pelosi with a USD1.8trn counteroffer with White House Economic Advisor Kudlow saying President Trump has approved the offer. But this is moot as there are three parties required for a bipartisan deal (White House, Senate and the House) and Senate Republicans remain a key obstacle. Citi analysts also assign a mere 5% probability to a pre-election stimulus deal. For the two sides to come together, the legislative process would require a two-week process at a minimum to pass a deal ass assuming the Senate wants to pass the deal.   

 

 Data releases Friday 

  • GBP: August GDP not so V but…- UK GDP grows by just 2.1% MM in August – well below  consensus for 4.6% and monthly GDP remains 9.2% below levels in February 2020 despite the UK economy having broadly reopened. But the weaker GDP data though has a silver lining with UK Chancellor Sunak announcing the furlough scheme will be partly extended and the UK government will pay two-thirds of wages of workers in companies forced to close as a result of virus restrictions. At the same time BoE Governor Bailey says BoE could add more firepower if needed, reinforcing the solid monetary/ fiscal coordination in UK recently under scrutiny        
  • CAD: Canadian employment is up by 378.2k in September, stronger than consensus for 150k with the unemployment rate falling to 9.0%. The data reaffirms resilience of the jobs market with over 75% of jobs lost from February - April now recovered. But the path of employment in coming months remains uncertain and Citi analysts expect October to be much-weaker for job growth.       

      

Data/ events for the week ahead   

  • USD: CPI MoM – Citi: 0.2%, median: 0.2%, prior: 0.4%, CPI YoY – Citi: 1.4%, median: 1.4%, prior: 1.3%; CPI ex food, energy MoM – Citi: 0.2%, median: 0.2%, prior: 0.4%, CPI ex food, energy YoY – Citi: 1.8%, median: 1.8%, prior: 1.7% - Following a few months of much stronger-than-usual increases in core CPI, Citi analysts expect a more typical 0.21%MoM increase in September, although with still a high degree of uncertainty around some price components. 
  • USD: 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% - Citi analysts expect another solid increase in retail sales in September, partly due to another strong rise in auto sales. Sales in retail control group should rise more modestly however with risks to the downside.
  • USD: U. of Michigan Consumer Sentiment – Citi: 79.8, median: 80.5, prior: 80.4, 1y Inflation expectations – Citi: 2.6%, prior: 2.6% - Citi analysts expect a modest pullback in the consumer sentiment indicator for October (preliminary) with inflation expectations also seen unchanged. 
  • EUR: German ZEW Expectations, October: Forecast: 76, Prior: 77.4; ZEW Current Assessment, October: Forecast: -60, Prior: -66.2 – Citi analysts expect expectations to plateau as investors await the US election and Brexit and as 2nd wave of Covid-19 infections spike across Europe.
  • AUD: Australian jobs: Citi 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.  
  • SGD: MAS Policy Decision -  Citi analysts expect MAS to stand pat (70 -80%) given the likely  upgrade in 2020E core CPI forecast to upper half of the -1 to 0% range. Still, with larger downside risks, especially from rising job market slack, further easing in Apr-21 cannot be ruled out.          

 

This is is an extract from the Daily Currency Update, dated October 12, 2020. Please approach a Citigold Relationship Manager if you would like more information.

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