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FX

Muted Reaction to US Exit from Iran Deal

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Trump announces US exiting Iran deal                        

  • President Trump announces the US is exiting the Iran nuclear deal. The market reaction is muted (for now) due to (1) the announcement already well flagged, (2) the decision still provides a 90-180 day timeline to reinstate past sanctions waived under President Obama, (3) this is a unilateral decision by the US with France, UK, Germany, China and Russia still “fully committed” to the deal. More importantly, the response from Iran to remain committed to “its own obligations” and remain in the deal allays market concerns for now, and (4) US Treasury Secretary Mnuchin’s subsequent comment that President Trump’s objective in exiting the deal may be to “enter a new agreement” – raising hopes there may still may be a negotiated outcome.

 

  • Key event for US is April CPI (Thursday) with Citi analysts expecting a moderate 0.16% MoM (1.9% annualized) core CPI. Base effects may boost core CPI over the next few months with the measure reaching 2.3% in May or June but may then likely remain around this level until the end of 2018.

 

 

EUR & GBP: Euro approaching major supports, sterling awaits MPC statement but more trouble brewing on Brexit front

  • EURUSD hits new lows overnight to levels not seen since the French elections. Negative headlines from the Italian election are probably not helping at a time when EUR sentiment remains vulnerable as the Five-Star leader Maio demands new election. But with Citi analysts eyeing a trough in euro zone data (both activity and inflation), a turn may not be all that far.

 

  • In the UK, market attention remains focused on tomorrow’s BoE meeting but there appears to be more trouble brewing on the Brexit front, summed up by Politico overnight with Foreign Secretary Boris Johnson challenging PM Theresa May’s Brexit plans, asking May to reject the EU Customs Partnership plan, or he may resign (and by implication prompt a leadership bid).

 

 

Commodity bloc underperformance likely on crosses

  • Along with the S&P’s concerns on Australia’s ratings outlook, a poor March retail sales yesterday at 0.0% versus 0.2% expected offsets February’s 0.6% spike. As Citi analysts point out, weakness is across the board and likely represents a major drag on Q1 growth with real consumer spending expected to slow from its 1% quarterly pace in Q4 to 0.5%-0.7% in Q1.

 

  • NZD awaits the RBNZ meeting early tomorrow morning with market rate expectations close to recent lows with only about 4 bps of tightening priced for this year and a total of 11 bps priced through Q1 2019. Such low expectations are likely to provide a buffer against further weakness in NZD should RBNZ express more dovish sentiment. In any case, Citi analysts do not expect the new Governor to change the existing forward guidance nor make wholesale changes to the Bank’s economic growth forecasts and look for a repeat of “monetary policy will remain accommodative for a considerable period with numerous uncertainties remaining and policy needing to adjust accordingly”.

 

  • No joy for CAD either on NAFTA with Reuters quoting sources close to the talks “suggesting a creeping feeling of uncertainty  going into the new round because of gridlock on the most critical issues." UASCAD trades at 1.2950 as the market grapples with this on-again, off-again.

 

 

Asia EM: China trade surplus with US may add to trade tensions

  • China’s April trade balance comes in at USD28.8bn versus USD27.75bn expected. Importantly China’s trade surplus with the US comes in at USD22.19bn versus USD15.43bn in March – significant in the context of the current US – China trade tensions.

 

 

This is an extract from the Daily Currency Update, dated 9th May 2018. Please approach a Citigold Relationship Manager if you would like more information

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

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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
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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
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