US retail sales due tonight but the August 1 FOMC remains the key event; RBA to remain dovish, BoC neutral to slightly hawkish

US retail sales due tonight but the August 1 FOMC remains the key event; RBA to remain dovish, BoC neutral to slightly hawkish           

• The only US data release overnight is the NY July Fed Empire manufacturing survey which recovers after last month’s print (that was the weakest since October 2018). Headline current business conditions index rises to +4.3 in July vs 2.0 consensus and -8.6 prior. USD however shows little reaction, with US retail sales tonight but ultimately, the Fed FOMC meeting and statement on August 1 likely having a much bigger impact on market pricing.               

• This week in the US, Citi analysts expect June retail sales at 0.1%MM (consensus 0.2%) and industrial production at -0.1%MM (consensus 0.1%MM). The Fed’s Beige Book will also be released. Fed speakers include Williams (FOMC Voter), Bostic, Evans (FOMC Voter), Bullard (FOMC Voter), and Rosengren (FOMC Voter).        

• Citi analysts now expect the Fed to cut rates by 25bp at its July meeting together with an early-end to balance sheet reduction. Following the July cut, Citi analysts expect one additional 25bp cut, most likely in September. Base-effects returning core PCE close to 2% though should help keep rates on hold in 2020. 

• Citi analysts - Expansionary fiscal and monetary policies fail to fire-up consumer or business sentiment in Australia. The sentiment declines have unwound most of the post-election rise in business sentiment and the entire post-election rise in consumer sentiment. Weaker sentiment argues for ongoing soft household consumption growth. This and spare labor market capacity will probably keep the RBA on an easing bias followed by another rate cut before the end of the year.              

• The July BoC meeting was more dovish than expected, with the BoC expressing relatively more concern over global growth risks than optimism over the stronger-than-anticipated domestic rebound. However, this is unlikely to translate into BoC rate cuts even as market-implied probabilities of BoC rate cuts have increased slightly, with 12bp of cuts now priced for this year. This likely makes CAD relatively more attractive within the commodity bloc (versus AUD and NZD) and on selected crosses (EUR and GBP) as well as versus USD.             

Citi analysts expect ECB to signal stimulus measures at July 25 meeting     

• Citi analysts expect 2Q-19 euro zone growth in manufacturing activity to be negative, after a strong 1Q (+0.9% QQ) and consistent with Citi’s baseline of slower euro zone real GDP growth of around 0.2% QQ in 2Q-19 after 0.4% QQ in 1Q-19. The Citi analysts’ baseline remains that the door to ECB QE will likely be reopened at the July 25 meeting together with the prospect of a 10bp rate cut (likely implemented at the September meeting).            

• This week in the euro zone, a vote on the nomination to head the EU Commission will be held on Tuesday. Data wise, Citi analysts expect UK June CPI at 1.9%YY, June retail sales at 0.2%MM and May employment change (3m/ 3m) up at 45k (versus 32k prior).   

NZ CPI unlikely to trigger RBNZ rate cut       

• NZD Q2 CPI released this morning comes in right at 0.6%QoQ and 1.7%YoY, slightly below Citi analysts’ expectations for 0.7%QoQ but in line with the RBNZ’s 0.6% forecast. The trimmed-mean measures – which excludes extreme price movements – ranges between 1-9-2.1% for the year and indicates that NZ underlying inflation is higher than the 1.7% overall increase in CPI. On a quarterly basis, the trimmed means ranges from 0.6-0.7%. The result means the RBNZ is unlikely to cut rates in the near term.    

• Key data releases this week in Canada should reinforce Citi expectations that BoC rates will remain on hold for some time. Citi analysts expects a solid increase in Canadian  retail sales while headline CPI should retrace to 2.0%YoY in June (consensus expects 0.6%QoQ and 1.7%YoY for the headline). In Australia, the RBA Minutes of July Policy Meeting are due today.        

China Q2 GDP slowest since 1992 means further PBoC easing but a stable CNY      

• Key China data highlights yesterday – (1) China's Q2 GDP is up at 6.2%, its slowest growth rate since 1992. And while there are some positives in the month of June — the last month of the quarter — this GDP print means that policymakers will continue to maintain easy policy. (2) China’s retail sales rise 9.8%YoY (8.5% expected) in June, underpinned by a sharp rebound in auto consumption (+17%YoY) that appears rooted in aggressive discounting. (3) Chinese industrial production is up 5.8% (versus 5.5% expected) and fixed income investment is also up 5.8%YoY (versus 5.5% expected). H1 private sector investment (+5.7%) and manufacturing investment (+3.0%) also surprisingly improve, likely reflecting stimulus effects on sentiment.  

• Citi analysts note that the data overall confirms PBoC accommodative monetary policy is likely to continue. How CNY and CNH trade will likely be contingent on the progress of trade talks and China’s policy responses. In the near-term however, USDCNY is likely to trade within recent ranges and any movement above 6.90 is likely to be faded as China takes macro-prudential measures when necessary to keep yuan basically stable.               

This is an extract from the Daily Currency Update, dated July 16, 2019. Please approach a Citigold Relationship Manager if you would like more information.