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USD Weakens as White House says Investment Restrictions against China False

Investment restrictions against China false, according to White House                      

  • Overnight, both US Treasury Secretary Mnuchin & Trade Representative Navarro said fresh investment restrictions against China are false. Navarro goes even further, saying “there’s no plans to impose investment restrictions on any countries that are interfering in any way with our country,” …..“this is not the plan. The whole idea that we’re putting investment restrictions on the world – please discount that.” S&P losses reached nearly -2.0% at the peak of bearish sentiment following the WSJ article that flagged US investment restrictions on China but closed -1.3% lower thanks to Navarro’s assurances.

 

 

A key week ahead in the euro zone for political developments

  • Comments from ECB's Vausiliauskas (Lithuania) overnight are more balanced as he expects upward movement in euro zone core inflation over the medium term but also talks of other tools in the ECB’s armory (in case they are needed) such as longer term loans to banks (TLTROS) to replace QE as he does not see need for continuing QE beyond December.

 

  • In Europe, the EU Summit this week is likely to focus on immigration, reforms and Brexit that potentially has repercussions for international relations, euro zone cohesion and national politics in several countries.

 

  • In the face of significant headwinds such as trade tensions and German/Italian political uncertainty, the Germany Ifo index for June released yesterday is encouraging. Importantly, expectations are stable at 98.6 vs a 98.0 decline expected and the headline business climate index comes in line with expectations at 101.8, representing only a modest decline from 102.3 prior. Citi analysts note that this is a more encouraging report – it is the first time since November that expectations haven't declined MoM.

 

 

NZD nervous about RBNZ’s dual mandate

  • Some nervousness in NZDUSD this morning with the pair reacting to Bloomberg headlines regarding the NZ finance minister’s letter of expectations to the RBNZ governor ahead of the RBNZ meeting this Thursday. The letter suggests more coordination is required between the RBNZ and the NZ Treasury on the former’s [now] dual mandate which is interpreted dovishly by markets.

 

  • This week, RBNZ Governor Orr’s second monetary policy announcement will take place on Thursday. Citi analysts expect the RBNZ to keep the OCR unchanged at 1.75% and maintain a neutral guidance path. Domestic economic activity data has softened and there appears to be more downside global risks to consider. In addition, there is now expectations from the NZ government that the RBNZ will better coordinate policy with the NZ Treasury.

 

 

Two event risks for CAD this week

  • This week, we will hear what the BoC thinks of current economic settings before the July meeting with Governor Poloz speaking on Wednesday. Note that there will be press conference following this event. The BoC will also release its Q2 Canadian Business Outlook Survey on Friday.

 

 

Asia EM: China – PBoC announces targeted RRR cut; Singapore May Core Inflation Picks Up, on Track For 2% in Q4

  • The PBoC announces it will cut the required reserve ratio for some banks by 50bps, effective July 5. This will likely unleash approximately RMB700bn (USD108bn) of liquidity and is in line with Citi analysts' expectations.

 

  • Singapore’s May core inflation comes in faster than consensus, but in line with Citi at 1.5% YoY (Consensus: 1.4%, Citi: 1.5%, Apr: 1.3%) and headline is also firmer at 0.4% YoY (consensus: 0.4%, Citi: 0.2%, Apr: 0.1%). Citi analysts now expect core inflation to reach 2% in 4Q18 that is likely to spur the MAS into further measured tightening towards the gentler “new normal” slope of 1-1.5% (vs 2-3% in 2004-2007). Escalation of US-China trade tension poses uncertainties, though already partly factored into MAS’s forecasts, with inflation effects possibly already filtering into prices, even before growth drags are felt.

 

 

This is an extract from the Daily Currency Update, dated 26th June 2018. Please approach a Citigold Relationship Manager if you would like more information.

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