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FX

US exceptionalism versus Europe?

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US exceptionalism versus Europe?     

  • USD: Citi analysts: Do not underestimate how quickly Fed’s current dovish rhetoric could change - MNI sources late last week report that Fed officials are under pressure to define their tolerance for higher inflation much sooner than expected even as the core message from the Fed remains dovish for now. The pressure seems to be coming from regional Fed members. The Fed’s dovish rhetoric may stay in place in Q1, but Citi analysts warn that investors should not underestimate how rapidly Fed rhetoric can shift as the public health and economic background changes. As such, the team maintains its call for the Fed to begin tapering in Q4 2021.         

  • EUR: EU Commission sees a delayed economic recovery - European Commission downgrades its euro zone growth forecast for 2021 to 3.8% from 4.2%, saying its predictions “crucially” hinge on virus containment measures starting to be eased toward the end of Q2’21. The Commission turns more bearish as European governments grapple with new variants of coronavirus and vaccine rollout disruptions. Citi analysts, in their updated pandemic trajectory for the euro area find vaccine supply in the EU is significantly lower than expected for 1Q and the gap is unlikely to be closed before 3Q. In the worst case, EU may not reach herd immunity supply before end-2021.   

 

Data releases Friday

  • USD: Headline University of Michigan index comes in weaker than expected at 76.2 (80.9 expected, 79.0 prior) but 1Yr inflation expectations rise to 3.3% vs 3.0% prior and  5-10Yrs are flat at 2.7% vs 2.7% prior. The Fed may well look past the near term spike in inflation as a result of base effects but note the message from MNI sources (above) that Fed officials are under pressure to define their tolerance for higher inflation much sooner than expected.  
  • GBP: A resilient end to UK GDP in 2020 but outlook tricky - UK Q4 GDP is up 1.0% QQ, stronger than BoE and consensus expectations (BoE 0.6%, Consensus 0.5%). 2020 GDP is now estimated to have fallen by -9.9%, in line with Citi analysts forecast. Two key concerns – (1) trade data in Q4 seems to have disappointed expectations significantly with exports up by just 0.1% QQ in Q4 – Citi analysts had expected 6.3%; and (2) weak private consumption seems to be spreading increasingly up supply chains to business services, posing wider risks. Where does UK go from here? – Citi analysts expect a sharp drop in UK private consumption in Q1’21 as tighter restrictions weigh. Output should recover strongly in Q2 and Q3, but the team still expects a marked output gap to persist.     

 

Week Ahead               

  • USD: Fed speak - Fed’s Rosengren takes part in panel discussion, FOMC Meeting Minutes release, Fed’s Brainard speaks at IIF Climate Finance Summit, Fed’s Bostic discusses educational Inequality.    

  • USD: US Retail Sales – Citi: 1.8%, median: 0.8%, prior: -0.7%; Retail Sales ex Auto – Citi: 1.7%, median: 0.8%, prior: -1.4%; Retail Sales ex Auto, Gas – Citi: 1.4%, median: 0.3%, prior: -2.1%; Retail Sales Control Group – Citi: 1.5%, median: 0.7%, prior: -1.9% - Citi analysts expect a strong 1.8% bounce-back in headline retail sales in January after two months of declining sales, with a 1.5% increase in sales in the retail control group even as headwinds remain for services sectors.

  • USD: US Industrial Production – Citi: 0.2%, median: 0.4%, prior: 1.6%; Manufacturing Production – Citi: 0.5%, median: 0.7%, prior: 0.9%; Capacity Utilization – Citi: 74.6%, median: 74.9%, prior: 74.5% - Citi analysts expect more modest increases of 0.2% in industrial production and 0.5% in manufacturing production in January following a larger increase in production in December.

  • USD: PPI Final Demand MoM – Citi: 0.5%, median: 0.4%, prior: 0.3%; PPI Final Demand YoY – Citi: 0.9%, median: 0.8%, prior: 0.8%; PPI ex Food, Energy MoM – Citi: 0.2%, median: 0.2%, prior: 0.1%; PPI ex Food, Energy YoY – Citi: 1.0%, median: 1.1%, prior: 1.2% - Citi analysts expect a strong increase in PPI final demand in January, led by strength in food and energy prices while excluding food and energy prices and trade services prices, PPI should rise a more modest 0.2%.

  • EUR: Euro area GDP, 4Q, 2nd Flash Estimate Forecast: -0.6% QQ Prior: 12.4% QQ - A likely small upward revision to the GDP data in 4Q-20, from -0.7% QQ in the flash estimate. However, ample losses are still seen as large sectors of the euro area economy remain closed and Citi analysts do not expect much improvement in 1H-21 with another likely decline in 1Q.

  • EUR: German ZEW Expectations, February Forecast: 64.0 Prior: 61.8; ZEW Current Assessment, February Forecast: -69.0 Prior: -66.4 - equity markets, timelier at reflecting investors’ economic expectations – have continued to rise and Citi analysts expect ZEW expectations component to follow. However, Citi analysts expect economies where vaccination progress has been faster, such as the UK and US, to post bigger gains (a potential signal of impending USD and GBP outperformance vs EUR). 

  • EUR: Euro Area: Manufacturing PMI, February Flash 56.0, Prior 54.8; Services PMI, February Flash 47.5, Prior 45.4; Composite PMI, February Flash 49.7, Prior 47.8 – An eighth month of expansion in services while the contraction in manufacturing is likely to continue but at a slower pace. The Composite euro area PMI is likely to post a marginal contraction but is seen at a 4-month high.

  • EUR: German Manufacturing PMI, February Flash Forecast: 57.5 Prior: 57.1; Services PMI, February Flash Forecast: 45.0 Prior: 46.7 – the ongoing lockdown, emergence of virus mutations and disappointing vaccination campaign so far are all likely to weigh on service sector confidence. Citi analysts expect supply disruptions in manufacturing to lead to a higher manufacturing PMI in February.

  • GBP: UK CPI Inflation, January Forecast: 0.7% YY Prior: 0.6% YY; CPI Core, January Forecast: 1.4% YY Prior: 1.4% YY – Citi analysts expect CPI inflation to accelerate further this month due to less price discounting and higher import costs – in part as a result of the acute border disruption observed over recent weeks. Citi analysts expect UK inflation to pick up notably from April this year.

  • GBP: Retail Sales, January Forecast: -6.1% MM, -4.1% YY Prior: -3.8% MM, 2.4% YY; Ex Auto Fuels, January Forecast: -5.4% MM, -0.8% YY Prior: -2.6% MM, 5.6% YY – Citi analysts expect UK retail sales to have been hit hard by the recent national lockdown and expect negative Y/Y growth for the first time since May-20.  

  • GBP: UK Manufacturing PMI, February Flash Forecast: 53.2 Prior (Jan Final): 54.1 - headline UK manufacturing PMI in January was inflated by the 2nd largest increase in supplier lead times on record. Citi analysts expect some pressure to have eased with output stronger but the index still a little weaker.

  • GBP: UK Services PMI, February Flash Forecast: 44.5 Prior (Jan Final): 39.5 - January’s PMI suggested the sharpest decline in output since May 2020 due to tightened lockdown restrictions. This month, Citi analysts expect a rebound, largely reflecting the sequential change in output for many firms is likely to be steady. However the team still expects these data to remain below the 50-no-change mark.

  • AUD: Australia January Labor Force: Citi employment; +20k, Previous; +50k; Citi unemployment rate forecast; 6.6%, Previous; 6.6% - Citi analysts expect labor market to continue recovering in 2021 despite JobKeeper wage subsidy ending in March though excess spare capacity is expected to persist.

  • AUD: Australia January Preliminary Retail Trade - Citi forecast; 1.0%, Previous; -4.1% - Retail trade likely recovered by 1% in January after a 4.1% fall in December. This would imply retail sales are up 11.2% on a year-ago basis, thanks to fiscal stimulus.

  • CAD: Canada CPI NSA MoM (January) – Citi: 0.4%, median: NA, prior: -0.2%; CPI YoY – Citi: 0.9%, median: NA, prior: 0.7% - Following a much weaker than expected headline December print, Citi analysts expect a more solid 0.4%MoM increase in January CPI with the Y/Y reading rising to 0.9%. Meanwhile, continued activity restrictions could keep average core CPI measures on the softer side again in January, although Citi analysts expect a climb back towards the 2% target later in the year.

  • CAD: Canada Retail Sales (December) – Citi: -3.1%, prior: 1.3%; Retail Sales ex Auto – Citi: -2.0%, prior: 2.1% - retail sales are expected to decline in December though is an incomplete picture for consumption in as some sales at large online retailers based outside Canada might not be captured.

  • SGD: Singapore 2021 budget preview - fiscal tapering amidst recovery signs - Citi analysts expect a small fiscal deficit of 2% of GDP in FY21E (FY20E: 14.5% of GDP), with a negative fiscal impulse likely. Targeted measures could be rolled out to “smoothen” the policy cliff, with greater emphasis placed on job creation and economic restructuring.         

 

This is an extract from the Daily Currency Update, dated February 15, 2021. Please approach a Citigold Relationship Manager if you would like more information.

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In various jurisdictions (including, without limitation, the European Union and the United States) national authorities have certain powers to manage and resolve banks, broker dealers and other financial institutions (including, but not limited to, Citi) when they are failing or likely to fail. There is a risk that the use, or anticipated use, of such powers, or the manner in which they are exercised, may materially adversely affect (i) your rights under certain types of unsecured financial instruments (including, without limitation, BRRD Financial Instruments), (ii) the value, volatility or liquidity of certain unsecured financial instruments (including, without limitation, BRRD Financial Instruments) that you hold and / or (iii) the ability of an institution (including, without limitation, a BRRD Entity) to satisfy any liabilities or obligations it has to you. In the event of resolution, the value of BRRD Financial Instruments may be reduced to zero and or liabilities may be converted into ordinary shares or other instruments of ownership for the purposes of stabilisation and loss absorption. The terms of existing BRRD Financial Instruments (e.g., date of maturity or interest rates payable) could be altered and payments could be suspended.

There can be no assurance that the use of any BRRD resolution tools or powers by the BRRD Resolution Authority or the manner in which they are exercised will not materially adversely affect your rights as a holder of BRRD Financial Instruments, the market value of any investment you may have in BRRD Financial Instruments and/or a BRRD Entity’s ability to satisfy any liabilities or obligations it has to you. You may have a right to compensation from the relevant authorities if the exercise of such resolution powers results in less favourable treatment for you than the treatment that you would have received under normal insolvency proceedings. By accepting any services from Citi, you confirm that you are aware of these risks.

In Canada, Citi Private Bank is a division of Citibank Canada, a Schedule II Canadian chartered bank. References herein to Citi Private Bank and its activities in Canada relate solely to Citibank Canada and do not refer to any affiliates or subsidiaries of Citibank Canada operating in Canada. Certain investment products are made available through Citibank Canada Investment Funds Limited (“CCIFL”), a wholly owned subsidiary of Citibank Canada. Investment Products are subject to investment risk, including possible loss of principal amount invested. Investment Products are not insured by the CDIC, FDIC or depository insurance regime of any jurisdiction and are not guaranteed by Citigroup or any affiliate thereof.

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.

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.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited
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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