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USD & Safe Havens modestly bid as Trump pushes back on trade optimism; GBP up as UK Brexit party not to contest Conservative seats

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USD & Safe Havens modestly bid as Trump pushes back on trade optimism; GBP up as UK Brexit party not to contest Conservative seats            

 

  • Safe havens (JPY & Gold) & USD: Trade pushback continues and risk sentiment is moderately weaker overnight with USDCNH back at 7.01, USDJPY below the 109 handle and US bond yields slightly lower. Recapping the trade headlines – (1) President Trump pushes back on recent market optimism about US – China trade, saying things are moving "very nicely" as China wants a deal "much more than I do" BUT that reports suggesting the US is ready to roll back tariffs are "incorrect," adding “If we don’t make that right deal, we’re not going to make a deal….” (2) Craig Phillips, a former top aide to US Treasury Secretary Steven Mnuchin talks about the Trump administration weighing limiting US inflows into China. However, this is not new as he merely revisits his speech for the China Finance Association’s annual conference in New York in June.    

 

  • Safe havens (JPY & Gold) & USD: This week also sees the deadline for the US to impose auto tariffs on EU, South Korea and Japan among others. However, current market expectations are for this deadline to be rolled again with European Commission’s President Juncker also quoted by Bloomberg towards the end of last week as saying - “Trump will ruffle a bit, but there will not be any automobile tariffs. He won’t do it. You’re talking to a fully informed man.”
  • GBP: Press reports overnight the Brexit Party (BXP) will NOT contest the 317 Conservative seats for fear of a hung parliament/second referendum, but will contest current Labor seats in the upcoming December 12 general election. This likely augurs well for GBP for two reasons – (1) Increases the Conservative majority probability (Deal risk up) - PM Johnson leads the national polls with a double digit lead, making it his (and by extension, GBP optimism) to lose in the next 5 weeks. However UK’s first-past-the-post system (rather than proportional representation) means polling does not equate to the number of seats each party will win. (2) It further reduces already low tail risk of BXP winning a substantial amount of seats and ending up as kingmaker (No Deal risk down).   

 

  • USD: The week ahead - US aims for a deal with China this week, but uncertainty persists. Citi analysts expect tariff decision on EU auto exports to the US to be delayed indefinitely. Data wise, strong US retail sales, but weak industrial production should continue the strong consumption/weak manufacturing narrative. Citi analysts expect headline CPI at 0.3%MM, core at 0.198%. FOMC speakers include Chair Powell and Vice Chair Clarida.               

 

EUR & GBP: Germany – recession risks lower bar for fiscal response; UK GDP rebounds in Q3, avoiding a recession            

 

  • EUR: Citi analysts now see an imminent recession in Germany following last week’s poor German factory orders and industrial production data. This likely boosts the case for fiscal stimulus – the German government’s financial situation allows – and the economic situation justifies – stimulus. However, rushed stimulus could end up being counter-productive and would therefore need to wait for changes to EU budget rules before a well – thought out fiscal stimulus program is delivered. •  In Europe, German GDP Thursday (Citi Research expect -0.1% QQ (0.4%YY) would indicate an official recession.   

 

  • GBP: A growth rebound – UK Q3 GDP rebounds by 0.3% QQ in line with Citi analyst forecasts, compared to -0.2% in Q2 (Citi 0.4%QQ, consensus 0.4% QQ). This remains a little below the post crisis (2011-2015) average of 0.5% QQ. Trend resilience persists – the recovery points to continued resilience in trend GDP growth that is underpinned by both the services sector and private consumption. Trend growth in manufacturing, however, weakens – even accounting for quarter on quarter Brexit related disruption.       

 

Commodity Bloc: NZ rates pricing 65% chance of RBNZ rate cut tomorrow, Citi analysts see no change                  

 

  • NZD: Outperforms within the Commodity Bloc overnight ahead of Wednesday’s RBNZ rate decision – markets attach an almost 65% chance of a rate cut whereas Citi analysts do not expect a cut. A “no change” in line with the Citi view would likely see a short term bounce in NZD versus USD and its commodity cousins as NZ rates move to take out the 65% probability of a rate cut.
  • AUD: Week Ahead – Today sees the release of Australian NAB Business Conditions for October - it has been trending lower over the course of 2019 though a recent respite in trade tensions may contribute to some upside in data here, supporting AUD more broadly. Thursday sees Australia October Labor Force data (Citi employment forecast +18k, previous +14.7k; unemployment rate forecast 5.2%, previous 5.2%).    
  • CAD: The key data release in Canada this week will be existing home sales for October, which Citi analysts do not expect to alter the recent trend of strengthening housing activity. BoC Governor Poloz will speak on Thursday, but is not expected to be significantly different from the BoC meeting just two weeks prior. AUD.       

 

Asia FX: Week Ahead – China  

  • CNY: In China, Citi analysts expect industrial production to pull back to 5.2%YY in October (consensus 5.4%), retail sales at 8.0%YY (consensus 7.8%), Fixed Asset Investment to moderate to 5.3%YY YTD in October (consensus 5.4%).   

 

 

This is an extract from the Daily Currency Update, dated November 12, 2019. Please approach a Citigold Relationship Manager if you would like more information.

 

 

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

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