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USD ends the week on 4 month highs with gains primarily against the euro; China entering a critical phase to tackle Coronavirus

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USD ends the week on 4 month highs with gains primarily against the euro; China entering a critical phase to tackle Coronavirus                                

  • USD: The broad based USD Index (DXY) ends the week holding above the 99 level and at 4 month highs with EURUSD falling to new lows at 1.0835 (refer to EUR strategy for a detailed discussion about EUR’s decline). Even so, DXY does face pockets of pressure on Friday on the back of soft US core retail sales data that Citi analysts call “slightly discouraging” as it  suggests the moderation in US consumption at the end of 2019 could carry over into the first part of 2020. Key data highlights Friday – (1) US headline retail sales rise 0.3%MoM in January, but below Citi at 0.5% while sales in the retail control group are flat on the month. (2) Aircraft manufacturing weighs on Industrial Production (IP) - IP falls -0.3%MoM in January and manufacturing declines 0.1%. Citi analysts had expected a weak IP reading in January due to the Boeing 737-MAX production shutdown. That said, potential supply-chain disruptions due to Coronavirus-related slowdown in China could pose further downside risks to US IP and weaker US data is likely to keep a healthy probability of Fed rate cuts priced-in (currently more than 40bp is discounted into US rates). Citi’s base-case however remains for Fed on hold in 2020.                   
  • USD: The Week Ahead - Fed Minutes may give some insights on balance sheet plans and the policy review. Attention will also turn to the Nevada caucus (22 Feb), with the last debate before Nevada (Feb. 22) to be held Feb. 19. The Nevada Democrat primary is the best proxy for Super Tuesday – where a third of delegates will be awarded and is a better representation of the US on many metrics. The current outlook for Nevada is more clouded given a lack of polls; however, indications suggest that Bernie Sanders will likely remain a front runner in the Democratic nomination process. This risk is yet underpriced by USD investors.
  • Safe Havens (JPY, Gold & CHF): As China enters a critical phase in tackling the Coronavirus, Wuhan's quarantine has seen further restrictions with people now not allowed to leave their neighborhoods except to seek medical care, help with medical and quarantine work, or assist in vital functions. Total cases are running nearly at 64k into the weekend. Citi analysts though are more hopeful saying that even with the shock of data revisions in Hubei, the virus shows signs of stabilizing and stimulus may be on the way in China and elsewhere, pointing to the likelihood of a decent rebound in H2’20 that potentially makes EM equities a H2 trade while it may be late-2020 before EA exports to China recover to help EUR in FX markets.      

 

EUR: A critical review of the reasons for euro’s selloff      

  • EUR: Friday’s data – German GDP comes in unchanged in 4Q 2019 (Consensus 0.1%, Citi 0.0%), following a 0.1% QQ increase in 3Q. However, the headline miss may be down to the upward revision in Q3 from 0.1% to 0.2%. (2) Winter 2020 EU Commission forecasts add 0.1pp to euro zone 2020 and 2021 HICP forecasts to 1.3 and 1.4% respectively while keeping its 2020 and 2021 euro area real GDP projections unchanged at 1.2%. The forecasts assume that the coronavirus outbreak peaks in 1Q-20, with relatively limited global spill-over effects. Week Ahead: Euro zone PMIs and UK core CPI - Citi analysts expect a rebound in UK core inflation to 1.6%YY and retail sales. More important are the next set of euro zone PMI numbers with Citi analysts expecting German manufacturing PMI at 44.5 in February, and euro zone manufacturing PMI down to 47.3.
  • EUR: Possible reasons for EUR’s current decline – (1) EU less US (hard) data momentum is turning negative; (2) Downward revisions to Chinese and global growth in the face of the COVID-19 outbreak to impact the euro zone more given supply chain linkages between Europe and China; (3) Rising political risks in Germany following withdrawal of Merkel’s hand picked candidate which throws a possible fiscal response into doubt; (4) Foreign (Japanese and European) investor buying of US bonds FX unhedged; (5) A poor technical picture. Bottom Line - Drivers 1, 2, 4 and 5 appear linked to Coronavirus while 3 (German political risks) is more longer term but likely pales in comparison with the political volatility expected in US ahead of the presidential elections. EUR downside risks likely to remain for next 4 – 6 weeks until the outlook on Coronavirus turns!!        

 

Commodity Bloc: Week Ahead – Australia & Canada    

  • AUD & CAD: January Labor Force: Citi employment forecast; -1.3k, Previous; 28.9k; Citi unemployment rate forecast; 5.2%, Previous; 5.1%; Citi participation rate forecast; 66%, Previous; 66% - there could be some noise in the Australian January labor force survey because of the bushfires across South-East Australia. A number of important data releases (including retail sales) will put the final touches on Citi analysts estimate for Canada’s Q4 real GDP growth (Citi currently at 0.8%). Headline CPI should remain at 2.2%YoY, but core measures are key.        

 

Asia EM: Economic fallout and policy responses from Covid-19      

  • CNY: Covid-19 likely economically worse than SARS for China and globally - Growth impact from the demand-side comes from China's broad demand slowdown, more specifically from tourism and hit to resident demand for services. HK, Thailand, Singapore come out more vulnerable on the services side; Korea and Taiwan on weaker China growth. Growth impact from supply-side disruptions from intermediate goods trade indicate Vietnam and Korea are more vulnerable; Singapore has short term disruption from labor shortage. Citi analysts downgrade growth in the region by 0.4ppts on the assumption that outbreak can be contained by end-March.
  • CNY: Week Ahead: China - Citi analysts expect the 1-yr Loan Prime Rate (LPR) to be cut by 10bp to 4.05%. Data wise, Citi analysts expect China YoY growth of China’s M2 to rise by 0.1ppt to 8.8%YoY in January and M1 to grow at 5%YoY in January. New RMB loans (Citi: RMB3,000bn) and TSF data (Citi: RMB4,000bn) may accelerate in January.       

 

This is an extract from the Daily Currency Update, dated February 17, 2020. Please approach a Citigold Relationship Manager if you would like more information.

 

 

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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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