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Tactically bearish safe havens and USD as new momentum builds for US – China talks; US jobs report softer but firmer hours & wages

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Tactically bearish safe havens and USD as new momentum builds for US – China talks; US jobs report softer but firmer hours & wages    

  • Safe Havens (JPY, Gold): US – China trade optimism from White House Adviser Kudlow – (1) says US – China phone call earlier last week has gone well; (2) Tariffs could be part of talks with China; (3) Chinese deputies team coming to US in September, main US – China trade negotiators to meet in October; (4) US wants to return to terms discussed in May. Kudlow comments follow Hu Xijin of the Global Times tweeting "there’s more possibility of a breakthrough between the two sides” and Toaran noting it's "very likely" there will be "new developments".                    
  • USD: Friday’s US August jobs report confirms the pace of job growth has slowed from the around 200K per month in 2018 to closer to 150K in 2019 but hours worked and wages have firmed which should support incomes and consumption – the key take away. Main details – (1) US economy adds 130K workers in August, below consensus for 160K and Citi at 181K; (2) Wage growth is much firmer than expected with a strong 0.39%MoM and 3.2%YoY rise in average hourly earnings; (3) Participation rate returns to its 5 year high of 63.2%, but despite the larger labor force, unemployment rate remains at a 3.7% due to a 590K rise in household employment. 
  • USD: Fed Chair Powell reassures; Says – (1) August jobs report is consistent with solid jobs market; (2) US manufacturing, trade “sideways to slightly down”; (3) But US economy in a good place, consumer in good shape; (4) Expectation is for no recession in US or global economy; (5) But significant risks lie, including trade tensions; (6) Will act as appropriate to sustain expansion. Bottom Line – Powell’s comments signal a 25bp (fully discounted) and not a 50bp cut in September. His last comment suggests an open ended commitment to do more if required.       
  • USD Outlook and Week Ahead: The path towards sustained USD weakness lies with resolution of the US – China trade dispute. Should a trade deal be concluded in October, this would likely see a reversal in current CNY weakness expected to flow to others (commodity bloc, Asia EM and even EUR) with safe havens (JPY, CHF and Gold) taking a hit along with USD.  Therefore, following last week’s positive US – China trade developments, investors may take a tactically bearish USD (and safe havens) position ahead of the October trade meeting. This week in US sees August core CPI (Citi analysts expect a strong at 0.18%MoM and 2.3%YoY) while August retail sales are likely to moderate following a 5-month string of strong readings (Citi analysts expect +0.1%MoM).              

 

German data disappoints but ECB push back against QE firms euro; GBP outlook mixed even as “No Deal” risk recedes  

  • EUR: A firmer floor but a strong rally unlikely - Citi and consensus look for ECB on Thursday to deliver  a rate cut (10bp), resumption of QE (EUR360bn over 12 months) and reformulation of forward guidance to be more open-ended and linked more directly to (core) CPI performance. ECB speak so far appears to downplay prospects of restarting QE and its absence could provide a firmer floor for EUR though a sustained rally post meeting is unlikely as it would likely require – (1) resolution to the US – China trade dispute and reversal in CNY weakness; (2) ECB stimulus this week complemented later by fiscal stimulus – the latter remains elusive for now.      
  • GBP: Outlook mixed - GBPUSD trades as high as 1.2350 Friday as prospects for a “No-Deal” and immediate election risk recede. This follows the bill to block “No-Deal” Brexit becoming law that would require PM Johnson to seek a 3 month extension from the EU if no deal is forthcoming. Meanwhile, opposition parties appear to agree that any snap election must not take place until after another Brexit delay is secured. Citi’s base case is for a UK election after October 31, but before Brexit is resolved. But while the risk of a “No Deal” on October 31 appears to have receded for now, it is not completely eliminated – a strong (and pure Brexiteer) Conservative victory in UK elections would likely bring back the prospect of a “No Deal” as the base case.     

 

Canada - Solid jobs; Australia - New policy pact 

 

  • CAD: Canadian employment rises a solid 81.1k in August, the unemployment rate remains at 5.7%, hourly wages of permanent employees retrace but to a still strong 3.8%YoY. The data reaffirms the Citi analyst view that BoC is unlikely to lower rates. Tactically bullish CAD –With BoC unlikely to turn dovish, tactical outperformance is seen heading into the US – China trade talks in October versus its peer NZD, Asia EM FX (CNH, SGD etc) and safe havens (JPY, CHF and Gold).
  • AUD: Australian government and RBA are to hammer out a new monetary policy agreement to re-affirm the 2% to 3% target band and introduce a BoE style agreement whereby the Governor sends an open letter to the Treasurer when inflation is outside the band – more transparency but not necessarily ex-ante more policy aggressive.  Tactically bullish AUD - With RBA currently in a wait and see mode and renewed optimism about US – China trade talks, there lies scope for AUD tactical outperformance vs its peer NZD, Asia EM FX and safe havens (JPY, CHF and Gold).     

 

China - RRR cut a tactical support to risk sentiment

  • CNY: PBoC announces Friday it is cutting RRR for overall financial institutions by 50bp, and 100bp for some city commercial banks – a favorable development for risk sentiment, at least in the short term especially as the announcement follows the positive trade headlines. 
  • CNY: This week sees China’s trade balance for August - market consensus is for export growth to moderate to 6.3%YoY (prior 10.3%), imports to decline -3.1%YoY (prior -0.4%) leading to a marginal decline in China’s trade surplus to USD44.3bn (prior USD45bn). China’s FAI is expected to show growth at 5.6%YY YTD, retail sales at 7.3%YY, and industrial production at 5.2%YY.

           

This is an extract from the Daily Currency Update, dated September 9, 2019. Please approach a Citigold Relationship Manager if you would like more information.

 

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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
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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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