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USD weakens modestly on the confirmation hearing of Janet Yellen as the new US Treasury Secretary

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USD weakens modestly on the confirmation hearing of Janet Yellen as the new US Treasury Secretary                        

 

    

  • USD: Confirmation of ex-Fed Chair Janet Yellen as the new US Treasury Secretary – key mentions – (1) US fiscal stimulus - President-elect Biden’s recent USD1.9tn stimulus plan is given the greenlight by Yellen, acknowledging the importance of a balanced budget, but also noting that low interest rates and continuing uncertainty ahead warrants a significant fiscal response. Yellen also touches upon taxes, reassuring there would be no attempts to repeal earlier tax cuts or levy higher taxes while the US is still recovering from the pandemic. No mention of USD at the hearing overnight but the WSJ on Sunday reports  Yellen as saying - “the US doesn’t seek a weaker currency to gain competitive advantage. We should oppose attempts by other countries to do so.” (2) Bond supply - Yellen discusses the possibility of introducing a UST 50Yr bond. The initiative still remains speculative, but if introduced, may see pressure on yields to push higher at a time when the Fed may consider QE tapering around Oct’21 (Citi analysts). (3) US – China tensions - Yellen suggests the US Treasury will likely take measures against China on currency and trade practices. The former is touched upon in a broader context, with Yellen arguing that FX rates should be largely determined via market dynamics rather than artificially shifted. This suggests the Biden administration is unlikely to reverse Trump’s hawkish policy on China in the near term.

  • EUR: German ZEW – steady investor confidence - German ZEW expectations for January beats consensus at 61.8 and prior (consensus 59.4, prior 55.0) as does the Current Assessment at -66.4 (consensus -68.3, Citi -70.0, prior -66.5). Investor confidence improves but of more interest are the euro area and German Markit PMIs due Friday post-ECB.

  • CNY: Chinese commodities trade data and outlook - Citi analysts point to more modest commodity imports by China in 2021, stronger exports - in 2020, China has seen strong total goods exports and larger trade surpluses. China has also imported record amounts of many commodities in 2020. However, in 2021, imports of commodities could moderate while exports could rise more significantly in 2H’21 given accelerated ex-China demand pick up. In particular, Chinese commodities demand might slow in coming weeks due to new COVID lockdowns and the peaking of the credit impulse. Energy imports may remain robust in 1Q’21 because of strong heating demand due to a colder-than-normal winter reflected in new crude oil import quotas and an eventual clearing of rising floating storage at ports. But geopolitical uncertainties, in particular with countries in the APAC region such as Australia may cloud China’s bilateral trade relations.       

     

Key data/ events this week   

  • EUR: ECB Monetary Policy meeting – Refi Rate Forecast: 0.00% Prior: 0.00%; Deposit Facility Forecast: -0.50% Prior: -0.50%; Marginal Lending Facility Forecast: 0.25% Prior: 0.25% - Citi analysts do not expect any changes on policy or communication but it is of interest to see what message President Lagarde sends with respect to the near-term outlook and risks surrounding the baseline and current strength in EUR and impact on euro area’s longer term inflation outlook.  

  • JPY: BoJ board meeting - Will the BoJ broaden its YCC range? - Media reports over the weekend suggest the BoJ may broaden the range for its YCC (yield curve control) at this week’s board meeting. BoJ currently sets the 10yr JGB yield target at 0%, while setting the policy rate at -0.1% and the JGB yields range at ±0.2%. Citi analysts however think it unlikely that the BoJ further widens the trading band of its 10Yr JGB yield at this week’s meeting.

  • EUR: Euro area Manufacturing PMI, January Flash Forecast: 57.0 Prior: 55.2; Services PMI, January Flash Forecast: 43.0 Prior: 46.4;  Composite PMI, January Flash Forecast: 47.5 Prior: 49.1 – Citi analysts estimate the flash composite PMI will fall in January, by around 1.5, signaling economic activity is contracting due to lockdowns but the impact is smaller than in November, let alone spring.      

  • GBP: Manufacturing PMI, January Flash Forecast: 52.5 Prior (Nov Final): 57.5 – Citi analysts expect the UK headline manufacturing PMI to fall back sharply this month as recent data has been flattered by both Brexit stockpiling effects and growing pressure on supply chains. 

  • GBP: Services PMI, January Flash Forecast: 40.3 Prior (Nov Final): 49.4 – Citi analysts expect UK services sector to be hit hard by the move on 4 January back into a national lockdown.  

  • CAD: Bank of Canada Rate Decision – Citi: 0.25%, median: 0.25%, prior: 0.25% - Citi analysts are most curious to hear about any possible guidance around upcoming changes to monetary policy. Citi’s base case continues to be that the next adjustment to monetary policy will be to allow for a slower pace of weekly bond purchases later this year (possibly the April BoC meeting).  

  • AUD: December Labor Force Survey: Citi employment forecast; +40k, Previous; +90k; Citi unemployment rate forecast; 6.7%, Previous; 6.8% - After the strong job growth in November, Citi analysts believe the unemployment rate has peaked at 6.8% in Australia and will likely decline from here on. The strong November result showed that the tapering of the JobKeeper wage subsidy program has not resulted in a negative shock to employment, which should lessen any lingering concerns regarding of an adverse fiscal cliff moment from further stimulus tapering this year. 

  • NZD: Q4 CPI: Citi forecast QoQ; 0%, Previous; +0.7, Citi forecast YoY; 0.9%, Previous; +1.4% -  Citi analysts expect a flat reading for NZ Q4 CPI, driven by reduction in food prices but stronger Black Friday sales. Moreover, relative strength of NZD means that tradeable inflation is muted; Citi analysts expect a 0.8% drop in tradeable items which offsets a 0.5% rise in non-tradeable items.

 

This is an extract from the Daily Currency Update, dated January 20, 2021. Please approach a Citigold Relationship Manager if you would like more information.

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(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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