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A solid risk rally on vaccine hopes, re-opening news and higher oil prices leaves USD sharply weaker

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A solid risk rally on vaccine hopes, re-opening news and higher oil prices leaves USD sharply weaker                              

  • USD: DXY falls ~0.75% overnight, marking the largest daily decline since late March on vaccine hopes – a US drug manufacturer reports individuals treated with its small early vaccine trial develop the same concentration of antibodies found in COVID-19 recovery patients and with limited side effects. Phase 2 of the trial will cover 600 patients “shortly,” while Phase 3 is due in July. This is followed by President Trump who promises "big announcements" soon on vaccine and therapeutics. On fiscal efforts, says he is considering an “Explore America” tax credit.                        
  • USD: Reopening news also adds to the risk rally overnight - 75% of California is reopened according to the state governor, as well as a large US technology firm reporting plans to reopen more stores. This combination seems to outweigh cautious comments from Fed Chair Powell on Sunday warning the US recovery could take until 2021, but that most layoffs so far could be temporary. The wild card still appears to be the risk of second waves. On this, Chair Powell comments “assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year.”    

  • USD: WTI shines - the rally in oil prices overnight sees the WTI June contract back above $30 for the first time in almost two months – a stunning turnaround from negative prices in the front-end contract almost a month ago. This is very much a supply driven story - US drilling rigs have fallen for a ninth week while Cushing inventories fell last week and OPEC+ continues to cut production deeper than required.

 

Euro developments on a joint fiscal response add to the risk rally                    

  • EUR: Gains a big figure overnight on a coordinated response from Germany and France for euro bonds - a joint French-German initiative for a EUR540bn EU recovery fund reinforces investor expectation that pro-European forces will avert a major escalation in breakup risks. This forms part of the EC proposal of a Recovery fund with more details due on 27 May. The proposal includes three elements that are behind the market’s positive reaction – (1) reference to ‘grants’ not loans in the distribution of funds as well as ‘joint funding’; (2) symbolism of a joint French-German proposal; and (3) low investor expectations into the announcement as earlier hopes were geared towards a possible announcement by September. Also note news that Germany is looking to add another €100bn supplementary budget for 2020.          

 

GBP pressured by negative rate headlines but quickly regains its footing

  • GBP: BoE chief economist Haldane wants to study easing policy options including negative rates - Haldane indicates that the Bank is reviewing a number of policies including negative interest rates and expanding the scope of the bank’s asset-purchase plan to include riskier securities “with somewhat greater immediacy.” This is contrary to pushback by Governor Bailey last week against negative rates. Note however that Haldane stresses the BoE isn’t poised to impose any of those polices imminently.
  • GBP: BoE member Tenreyro also declares that “[negative rates[ have had a positive effect in the sense of having a fairly powerful transmission to real activity…There are some considerations that are more specific to the UK and will need to be worked out including  effect on some financial institutions, implementation, communication and so on… For now, everything is on the table for us.”  The comments leads UK short rates to price sub-zero rates from December 2020 onwards (8bp of cut priced in by February 2021).
  • GBP: Bottom Line – neither the comments from BoE chief economist Lane nor board member Tenreyro suggest a move to negative rates is imminent in the UK. However, the concept needs to be studied as part of a more thorough analysis on the BoE’s full toolkit.            

 

Week Ahead: FOMC & ECB Minutes and EZ PMIs the key data this week                      

  • USD: Continuing jobless claims will likely send a strong signal regarding the health of the labor market. FOMC minutes may give clues to eventual forward guidance.
  • EUR & GBP: German ZEW Expectations for May (Citi: 32.0 from 28.2 prior); UK CPI Inflation for April Citi: 0.8% YY from 1.5% YY; German Manufacturing PMI, May Flash Citi: 38.0 from 34.8; Services PMI Citi: 35.0 from 16.2 – PMIs seen rising as lockdown eases, but remain well in contractionary territory; Euro Area: Manufacturing PMIs May Flash Citi: 40.0 from 33.6; Services PMI Citi: 25.0 from 12.0; Composite PMI Citi: 24.0 from 13.6 – Modest gain for manufacturing PMI seen, getting closer to 50-mark with bigger uptick for Services PMI from the very low reading prior and the first increase in three months for composite PMI; UK Manufacturing PMI, May Flash Citi: 44.5 from 32.6; Services PMI Citi:41.1 from 13.4; Composite PMI Citi: 41.8 from 13.8 – Rebound from unprecedented lows for PMIs but still below 50-mark; UK Retail Sales, April Citi: -12.1% MM, -18.4% YY from -5.1% MM, -5.8% YY; ECB will also publish minutes of the April meetings and BoE Governor Bailey will testify before the UK Parliament.
  • COMMODITY Bloc: NZD: NZ Q1 Retail Sales - Citi Q1 QoQ forecast; -9.8%, Previous; 0.7% - High-frequency data such as electronic card spending data suggests a precipitous fall in retail trade volumes in Q1; CAD: Canadian retail sales for March should fall by 10%, but sales excluding autos could show a more-muted decline due to stockpiling-related sales. Meanwhile, headline CPI should fall on declining energy and travel and tourism-related services prices. 
  • ASIA EM: Singapore Non-oil Domestic Exports (%MoM sa) April Citi -18.3, Consensus -19.8, Prior 12.8; (%YoY) Citi-6.4, Consensus -5.0, Prior 17.6; Singapore GDP (%QoQ SAAR) 1Q F Citi -9.0, Prior -10.6; GDP (%YoY): Citi -1.8, Prior- -2.2 – Citi analysts expect Singapore’s 1Q GDP to be revised up to -1.9% YoY, -9% QoQ SAAR though the team expects MTI could revise its 2020 GDP forecast downwards, possibly to -9% to -6% from -4% to -1% currently. CNY: China - 1-Year Loan Prime Rate (%) - Citi 3.85, Consensus 3.85, Prior 3.85 – Citi analysts expect PBoC’s 1-year Loan Prime Rate (LPR) to stay flat at 3.85% in May. PBoC just cut MLF rate on April 15, and the team does not expect another cut until June. 
  • Asia EM: China’s NPC to sign off fiscal measures - China’s two sessions will kick off this week, with the CPPCC opening on May 21, and the NPC opening on May 22. China plans to increase its fiscal deficit as a percentage of GDP, issue special sovereign debt and allow local governments to sell more infrastructure bonds. Citi analysts expect fiscal stimulus is likely to be in line with expectations to the tune of 5-5.5% of GDP (including on and off balance sheet measures). Local special bond issuance is expected to amount to CNY3.5-4tn and central government special bond issuance at CNY2tn.           

    

This is is an extract from the Daily Currency Update, dated May 19, 2020. Please approach a Citigold Relationship Manager if you would like more information.

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This document is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities to any person in any jurisdiction. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially.

Citigroup, its affiliates and any of the officers, directors, employees, representatives or agents shall not be held liable for any direct, indirect, incidental, special, or consequential damages, including loss of profits, arising out of the use of information contained herein, including through errors whether caused by negligence or otherwise.

CCIFL is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association of Canada (“MFDA”); consequently, clients of CCIFL will not have available to them investor protection benefits that would otherwise derive from membership of CCIFL in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA.

Bahrain: IN BAHRAIN, CITI PRIVATE BANK OPERATES UNDER SPECIFIC APPROVAL ISSUED ON THE BASIS OF CITIBANK, N.A., BAHRAIN BRANCH’S BANKING LICENSE

Marketing and distribution of Investment Funds to clients in Bahrain requires Notification to the Central Bank of Bahrain and will be limited to UHNWI as defined below. Minimum investment subscription criteria will apply for products for all subscriptions for Bahrain domiciled clients.

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
that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work, it is his/her responsibility
to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible
for advising an investor on the laws pertaining to his/her transaction.

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.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under
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
it is unlawful to distribute such information or make any offer or solicitation.

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
an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated
with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for
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.

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. 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 an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients.

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

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is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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