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Is overnight price action starting to signal an end to USD’s recent gains? EUR sentiment neutral for now on Coronavirus concerns

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Is overnight price action starting to signal an end to USD’s recent gains? EUR sentiment neutral for now on Coronavirus concerns                        

  • USD: The broad based USD Index (DXY) trades heavy overnight in profit taking from recent gains even as US data is supportive. For the record – (1) The US NFIB survey is off to a strong star for the small business economy, “with owners expecting increased sales, earnings, and higher wages for employees,” says NFIB Chief Economist William Dunkelberg. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.” (2) Fed Chair Powell delivers a on hold, “wait and see” message on risks from the Coronavirus. In the Q&A, Powell says the FOMC would only react to Coronavirus should it be seen as having a persistent negative effect on US growth – echoing comments from other Fed officials. Powell estimates the Coronavirus will exert only slight drag on US Q1 GDP growth – through reduced tourism and exports. However, there is a risk that shuttered factories lead to more significant effects on global supply chains and manufacturing, which are much harder to estimate for now.            
  • USD: CPI Preview (data due tonight) – Citi analysts expect US January CPI to support core PCE returning to 2% and see a solid 0.21%MoM increase in January, with moderate increases in components of underlying inflation but with relatively more strength in transitory factors. The data though is unlikely to be strong enough to price out expectations of Fed cuts this year (US rates currently price slightly more than 40bp of cuts before year-end), given that risks remain tilted to the downside on coronavirus concerns – such sentiment is likely to cap any post CPI rally in USD.   
  • EUR: Some evidence of stabilization in euro sentiment overnight as markets await ECB President Lagarde’s introductory statement at the European Parliament today at 09:00 EST in a presentation of the ECB annual report for 2018 where markets remain sensitive to any ECB Strategic Review hints on monetary policy. Other ECB-speakers may echo this - New Executive Board member Isabel Schnabel speaks at 11:30 EST in a speech titled "Narratives on the ECB's Monetary Policy: Reality or Fiction? And ECB chief economist Lane rounds off the day in a speech in Berlin at a financial markets conference. EUR Outlook – Euro zone front end rates now price roughly a 50% chance of a further ECB rate cut by year end on fears that the EU-China supply chain will likely take a hit from the Coronavirus outbreak. As a result, investors are currently adopting a more cautious but neutral stance on euro for now.   

 

GBP: Time to be more cautious ahead of buy levels at 1.2770

  • GBP: UK Q4 growth subdued, Q1 rebound still expected - UK GDP stagnates in Q4, with growth of 0.0% compared to 0.5% in Q3 (Citi 0.0%, Consensus 0.0%, BoE 0.0%). That rounds out a year of volatile quarterly UK GDP growth with UK GDP rising 1.4% overall in 2019. Services and private consumption are concerns — with both slowing in Q4 while production is also subdued with weakness in manufacturing relatively widespread compared to previous quarters. Investment also declines with manufacturing investment weak (-3.9% QQ) but UK exports are robust — growth is strong in Q4 at 4.1% QQ and follows 7.9% QQ growth in Q3. "Boris bounce" — Citi analysts still expect a rebound in Q1 2020 as forestalled investment, hiring and consumption plans are realized following the Conservatives’ decisive election victory. The rebound in services and construction output in December also points to resilience in the UK economy moving into Q1 while the weakness in investment in Q4 may be the springboard for a rebound in Q1-2020.  
  • GBP: Brexit developments - UK Chancellor Sajid Javid in a piece in City A.M overnight, says that the UK will seek to diverge from EU regulations but aim for an equivalence-based agreement for financial services. He is hoping for some form of permanent equivalence but the EU is unlikely to agree to this without further assurances. PM Boris Johnson will also carry out a cabinet reshuffle on Thursday, confirmed by his spokesperson. GBP Outlook – As with the euro, sterling investors now wait to see if hard data (UK GDP) mirrors the uptick seen in UK soft data (these prints will not emerge for a few weeks so sterling might struggle to rally in the short term).     

 

Commodity Bloc: Australian business confidence improves                            

  • AUD: Australia’s January NAB business confidence improves to -0.8% from -2.5% in December though the business conditions index is almost flat at around 3%. Overall, Australian indicators are now starting to price in a cyclical recovery and with the bar to further RBA easing higher (looking through the short term impact of bushfires ), this should see more resilience from AUD at current levels.
  • NZD: RBNZ Monetary Policy Meeting: Citi forecast; 1.00%, Previous; 1.00% - RBNZ is expected to leave the OCR unchanged at 1% in the February MPC meeting today and Citi analysts expect the Bank will remain on hold this year. A risk to the Citi analyst view is that a drop in tourism from the coronavirus could weigh on Q1 growth, which could lead to downward revisions.    
  • CAD: This week sees a panel presentation by Governor Poloz that could be one of the last times we hear from the BoC before the March meeting. Canadian January home sales data should show a continued rise in home prices.       
  •  

Asia EM: This week in China  

  • In China, the Wuhan virus remains in focus, with growth concerns looming. Data wise, Citi analysts expect YoY growth of China’s M2 to rise by 0.1ppt to 8.8%YoY in January and M1 to grow at 5%YoY in January. New RMB loans (Citi: RMB3,000bn) and TSF data (Citi: RMB4,000bn) may accelerate in January. Citi analysts also expect financial institutions to cut 1-year Loan Prime Rate (LPR) by 10bps to 4.05% to lower firms’ funding costs.   

 

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

 

 

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(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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