Risk sentiment hits a roadblock amidst an economic reality check and as road to de-confinement gets more complicated

Risk sentiment hits a roadblock amidst an economic reality check and as road to de-confinement gets more complicated - Risk sentiment hits a roadblock        

• USD: Risk sentiment turns negative overnight even as the 7 day moving average of global Coronavirus reported cases falls for the last two days, suggesting a global peak may be in sight provided there are no further significant outbreaks. US stocks slump following weaker performances from both European and Asian shares. Crude prices continue to extend losses following a gloomy forecast released by the IEA while US Treasuries and USD push higher.     

Road to de-confinement getting more complicated   

• USD: President Trump is now said to abandon his idea for creating a taskforce for COVID-19, and instead, holds a series of meetings overnight with business leaders who in turn stress more robust testing is the key. Meanwhile, NY Governor Cuomo says places will reopen based on (1) how essential a business is and (2) how risky is spread in that business.

• USD: The US’s small business aid program is set to run out of funds later Wednesday (as per sources). This puts pressure on Democrats and Republicans to reach a deal on a “Phase 3.5” of sorts, which has a USD250bn proposal to boost the SBA program at its core.   

Overnight central bank action/ comments                                

• CAD: BoC leaves rates unchanged at 0.25% and will continue to purchase government bonds at a minimum of C$5 billion per week. BoC also announces 2 new programs to purchase provincial debt (up to C$50 billion) and investment-grade corporate debt (up to C$10 billion). The Monetary Policy Report (MPR) sees growth potentially declining by 1-3% in Q1 and 15-30% in Q2.    

• USD: Cautious Fed speak. Fed President Daly - “I don’t expect a sharp V-shaped recovery, I expect something more like negative quarters of growth throughout 2020, and then a gradual return to positive growth in 2021.” This contrasts to Fed’s Bullard who says a “V shaped recovery” is possible but estimates ~USD25bn in income lost daily.

• CNY: PBoC cuts the 1Yr MLF by 20bps to 2.95% and injects RMB 100bn into the money market system. PBoC is likely to follow this up with a cut to the LPR by 20bps on Friday. Ahead, Citi Research expect another RRR cut at end-Q2 or early-Q3, besides April 3’s targeted RRR cut.      

Overnight data: Economic reality of Coronavirus starts to hit home     

• USD: Overall March retail sales fall sharply but stockpiling drives control group sales higher - Total retail sales fall 8.7% in March (consensus at -8.0%) and is led by a 25.6% decline in auto sales and a 26.5% decline in restaurant sales. Sales in the retail control group however rise 1.7% on the month (consensus for a 2% decline) and boosted by sales at food and health stores.

• USD: Industrial production still manages to surprise to the downside, declining -5.4% in March and manufacturing, down -6.3%MoM with drops broad based. . Citi analysts expect manufacturing activity to continue to fall further in April and point to the March data highlighting the expected slowing in activity slightly earlier and more widespread than previously thought.

• AUD: Largest ever fall in monthly consumer sentiment – Australian household sentiment index falls by the most in the 47 year history of monthly sentiment data in April, down 17.7% in April (the decline is worse than the 11.1% GFC fall in October 2010) to 75.6 points. Consumer sentiment could worsen further, given that Citi analysts expect the 2020 recession to be far worse than the one in 1991. The all-time low in the sentiment index was 64.6 recorded in Nov’1990 and a level below is not out of the question in coming months. Optically, April sentiment corresponds to a decline in yearly household consumption of around 1.5% while the rise in unemployment expectations data portends a meaningful spike in the unemployment rate despite Australia’s direct fiscal contribution at 11% of GDP which is already one of the largest in the world.

• EUR: French retail sales collapse in March with turnover down 24% MM in seasonally and workday adjusted terms compared to February’s fall of 7.2%. Meanwhile, Italian core inflation is stable in March, despite lockdown with falling tourism-related services prices offset by higher food price inflation but Spain’s headline inflation falls sizably in March with falling energy prices shaving 0.7pp off headline inflation which falls to 0% YY in March. 

• COMMODITIES: Are OPEC+ cuts too late for oil? WTI re-tests the range lows ($19.27) overnight despite the recent OPEC + production cuts as the IEA warns that global oil demand could fall by a record 9.3mn bpd YoY in 2020, with demand in April likely to be 29mn bpd lower than April 2019. IEA also flag that demand drop could exceed OPEC+ cuts as per the Citi analyst outlook.       

Week Ahead – US, Australia and China

• USD: Tonight’s initial jobless claims will likely remain high but have probably peaked.  

• AUD: Australian March Labor Force Survey: Citi employment forecast; -41.5k, Previous; 26.7k; Citi unemployment rate forecast; 5.4 %, Previous; 5.1% - March Labor Force survey is likely to show early signs of the negative impact of Covid-19 on the Australian labor market though not fully as the survey was conducted between March 8-21 while the worst was towards month’s end.   

• Asia EM - China is still yet to release March industrial production, retail sales and FAI and Q1 GDP - Citi analysts expect Q1 GDP to come in at -8.0%YoY vs -5.9%YoY consensus. 

This is is an extract from the Daily Currency Update, dated April 16, 2020. Please approach a Citigold Relationship Manager if you would like more information.