Citigold. Citigold. FINANCIAL MARKET ANALYSIS 19 September Central Banks In The Driver Seat Again. Performance.

Transcription

1 Citigold FINANCIAL MARKET ANALYSIS 19 September 2016 Central Banks In The Driver Seat Again The ECB kept policy unchanged on September 8 th, raising investor concerns about an ECB taper tantrum alongside rising doubts over the efficiency of central banks policy tools. Since then, risk assets have started unwinding the bounce in July/August as bond volatility rose. With all eyes on the Fed and BoJ monetary policy meetings taking place this week, Citi analysts believe the FOMC is unlikely to raise rates before December. The BoJ is expected to take a pass at the September meeting, with the next round of monetary stimulus likely to be in January. Citi s medium-term view continues to be soft but fairly steady growth. The global economy is expected to grow at 2.4% and 2.7% for 2016 and 2017 respectively. Globally, bond yields are expected to stay low, with the US 10-year yield forecasted to stay around 1.65% by end Recent spread widening and market volatility can present a buying opportunity as global rates are expected to remain low while EM fundamentals continue to stabilize. Performance Global equity markets were lower last week, with the MSCI World falling 0.90%. US equities showed some resiliency with the Dow Jones Industrial Average and the S&P 500 Index rising 0.21% and 0.53% respectively. The Nasdaq jumped 2.31% last week. Equites in Europe and Japan suffered as investors lost confidence in the central banks monetary policies. European equities measured by the Stoxx Europe 600 Index slid 2.23%. In Japan the Nikkei 225 and Topix Index lost 2.63% and 2.41% respectively. The MSCI Emerging Market index fell 2.63%. The MSCI Emerging Europe and MSCI Latin American declined 3.17% and 3.47% respectively while the MSCI Asia ex-japan lost 2.51%. In Asia, Chinese equities traded in Hong Kong were hit hardest. (HSCEI: -4.60%) Asset Allocation Equities The recent rally in cyclical and financial sectors appear extended. On the other hand, a softer US dollar and a relatively dovish Fed argue for the continuation of the EM rally in Citi s view. Credit Citi analysts continue to prefer US investment grade credits, US and European high yields and emerging market bonds Rates Citi believes that any rise in the US 10-year Treasury is likely to be contained. Commodities Oil prices are likely to chart a choppy path higher, as concerns over the global oversupply situation persists. Divergent economic data Citi Economic Surprise Index CESIUSD Index CESIEUR Index CESICNY Index 60 ECB disappointment sends bonds lower Accumulated 3-month Bond Index Returns World Govt Bonds Index Global EMD Index HY Index Equities showing some resiliency Accumulated 3-month Equity Index Returns MSCI World MSCI EM MSCI Asia Week Ahead Key Data and Event % 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 20% 15% 10% Date Country Data & Event Period Survey Prior Citi Fct 19-Sep HK Unemployment Rate SA Aug 3.4% 3.4% 3.4% 20-Sep US Housing Starts Aug 1192K 1211K 1175K 21-Sep JN Exports YoY Aug -4.5% -14.0% -4.1% 21-Sep JN BOJ Policy Rate 21-Sep -0.1% -0.1% -0.1% 22-Sep US Leading Index Aug 0.0% 0.4% -0.2% 22-Sep US FOMC Rate Decision (Upper Bound) 21-Sep 0.5% 0.5% 0.5% 22-Sep TA Export Orders YoY Aug 0.1% -3.4% 1.0% 22-Sep PH BSP Deposit Facility Rate 22-Sep 2.5% 2.5% 2.5% 22-Sep TA Unemployment Rate Aug % 4.0% 22-Sep ID Bank Indonesia 7D Reverse Repo 22-Sep 5.0% 5.3% 5.0% 22-Sep US Initial Jobless Claims 17-Sep K 270K 23-Sep JN All Industry Activity Index MoM Jul 0.2% 1.0% 0.1% 5% 0% -5% variety INVESTMENT of economic, market PRODUCTS: and other NOT factors. A BANK Likewise, DEPOSIT. past performance NOT GOVERNMENT is no guarantee INSURED. of future NO BANK results. GUARANTEE. MAY LOSE VALUE. Page 1

2 Drivers and Risks by Market United States Driver: Polls have tightened ahead of November 8th US presidential elections, with Clinton s post-convention lead nearly evaporated. Hillary Clinton still has a much more mathematically straightforward path to victory in the Electoral College vote, but suffers from an enthusiasm gap that may affect support at the polls on November 8th, with Trump voters significantly more likely to say they intend to vote. Risk: Markets are only partially pricing in a Trump victory. A rising chance of a Trump victory may suggest higher volatility. Implication: If the political outlook in the US evolves to the point that markets begin price in an 85% probability of a Trump win, markets may see (1) US dollar strength, especially versus EM currencies; (2) Higher US 10-year and 30-year treasury yields with curves to steepen; (3) Weaker US and global equities, especially EM; (4) Wider US credit spreads and (5) Higher gold prices in Citi s view. End-2016 Target: S&P Europe Driver: Political risk is rising in Italy. Italy's government will meet on 26 September to decide the date of a national referendum (likely on Nov or December). Voters will be asked whether they approve of amending the Italian Constitution to transform the Senate of the Republic into a "Senate of Regions" composed of 100 senators mainly made up of regional councillors and mayors End-2016 Target: 310 Risk: While a NO outcome is unlikely to lead to early elections, it might stop the already modest reform path while pushing Italy back into the chaos. A weak government could struggle to prevent a loss of confidence in the banking system while opening the way to growing Euro criticism DJ Stoxx TMI Implication: Citi remains neutral on European equities. While valuations are not expensive, a packed electoral calendar for the coming year could prove disruptive. Against a muted economic recovery, it may be difficult for the market to outperform. Japan Driver: The Bank of Japan (BoJ) may not implement additional easing at its September meeting. Instead it may wait for the market to digest key messages of the Comprehensive Assessment before easing again. Citi s base-case is a 10bp rate cut to -0.2% from -0.1% in January End-2016 Target: 1350 Risk: A number of media sources have reported the BoJ is considering additional easing by taking interest rates further into negative territory in September. Citi analysts believe the BoJ would ease further this week if the yen strengthened suddenly to 95/$ or below, which appears unlikely Japan Topix Implication: While an expansion of quantitative easing is positive, the Negative Interest Rate Policy (NIRP) is negative for equities, in particular for banks and life insurers. The positive impact on exporters is likely limited unless the yen depreciates sharply. The NIRP could benefit "bond refugees" and J-REITs. Emerging Markets Driver: The history of EM equity markets and Fed tightening shows that at the onset of tightening, EM equity markets have historically gone up. Earnings have risen post periods of Fed tightening in EM. This is because most Fed hike cycles have coincided with stronger US and global growth. Risk: A sharp US dollar appreciation hits EM earnings by lowering commodity prices and hurts the capital account in EM. However, Citi analysts believe that the US dollar may have peaked. Long term dollar appreciation cycles tend to end after around 5-6 years, suggesting the current uptrend that began in 2011 is living on borrowed time End-2016 Target: 530 MSCI Asia ex JP Implication: While earnings in EM are now on the rise again especially in EMEA and LatAm, Citi analysts see further room for EM outperformance and prefer Latin America on the back of improving commodity prices. For sectors, Citi remains overweight banks, consumer discretionary, materials, technology and utilities. Page 2

3 Currency Forecast Last price Forecasts Currency 16-Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 G10-US Dollar Euro EURUSD Japanese yen USDJPY British Pound GBPUSD Swiss Franc USDCHF Australian Dollar AUDUSD New Zealand NZDUSD Canadian Dollar USDCAD EM Asia Chinese Renminbi USDCNY Hong Kong USDHKD Indonesian Rupiah USDIDR 13,155 13,213 13,399 13,509 13,529 13,549 13,569 Indian Rupee USDINR Korean Won USDKRW 1,122 1,097 1,086 1,082 1,086 1,090 1,094 Malaysian Ringgit USDMYR Philippine Peso USDPHP Singapore Dollar USDSGD Thai Baht USDTHB Taiwan Dollar USDTWD EM Europe Russian Ruble USDRUB South African Rand USDZAR EM Latam Brazilian Real USDBRL Mexican Peso USDMXN Source: Citi Research and Bloomberg as of 16 September 2016 \\ Weekly Market Performance (12 16 September 2016) -6.2% -4.6% -2.2% -2.4% -2.5% -2.5% -2.9% -3.2% -3.2% -1.9% -3.5% -0.7% -0.9% -1.0% -1.1% -1.3% -0.1% 0.5% -8% -6% -4% -2% 0% 2% US S&P 500 Citi High Yield MSCI AC World UK FTSE 100 Gold Korea KOSPI Japan TPX Index MSCI AsiaXJapan Taiwan TAIEX HK Hang Seng China HSCEI Citi World Broad Inv Grade Citi Global Emerging Mkt Sovereigns Europe Stoxx Europe 600 China Shanghai Composite MSCI Emerging Europe MSCI Latin America Market Performance (Year-To-Date) (As of 16 September 2016) Oil Short Rates and 10-Year Yield Forecasts Last price 16-Sep-16 3Q16 4Q16 1Q17 2Q17 3Q17 Short Rates (End of Period) US Japan Euro Area Year Yield (Period Average) US Japan Euro Area Source: Citi Research and Bloomberg as of 16 September % -7.7% -15.2% -15.2% 25.7% 23.4% 16.2% 14.0% 13.9% 13.3% 8.6% 7.5% 6.8% 6.5% 5.5% 4.7% 3.0% 1.9% MSCI Latin America Gold Oil Citi High Yield MSCI Emerging Europe Citi Global Emerging Mkt Sovereigns MSCI AsiaXJapan UK FTSE 100 Taiwan TAIEX HK Hang Seng Citi World Broad Inv Grade US S&P 500 MSCI AC World Korea KOSPI China HSCEI Europe Stoxx Europe 600 China Shanghai Composite Japan TPX Index -40% -20% 0% 20% 40% Page 3

4 World Market At Glance US / Global Last price 52-Week 52-Week 16-Sep-16 High Low 1 week 1 month 1 year Year-to-date Year-to-date (USD) MSCI World % -2.14% 3.12% 2.96% 2.96% Dow Jones Industrial Average % -2.31% 8.27% 4.01% 4.01% S&P % -1.79% 7.21% 4.66% 4.66% NASDAQ % 0.33% 7.27% 4.74% 4.74% Europe MSCI Europe % -2.62% -7.72% -4.52% -4.52% Stoxx Europe % -1.60% -6.65% -7.65% -5.13% FTSE % -2.66% 7.72% 7.50% -4.61% CAC % -2.87% -6.75% -6.57% -4.02% DAX % -3.75% 0.48% -4.35% -2.14% Japan NIKKEI % -0.47% -9.09% % 2.30% Topix % 1.00% % % -0.09% Emerging Markets MSCI Emerging Market % -3.29% 7.63% 11.50% 11.50% MSCI Latin America % -8.38% 12.35% 25.72% 25.72% MSCI Emerging Europe % -3.36% -0.19% 13.95% 13.95% Brazil Bovespa % -3.02% 17.56% 31.67% 58.51% Russia RTS % -1.38% 14.81% 27.00% 27.00% Asia MSCI Asia ex-japan % -1.19% 8.98% 8.57% 8.57% Australia S&P/ASX % -4.25% 3.88% 0.02% 2.72% China HSCEI (H-shares) % -1.16% -3.12% -0.68% -0.78% China Shanghai Composite % -3.45% -4.74% % % Hong Kong Hang Seng % 1.85% 6.23% 6.49% 6.37% India Sensex % 1.90% 10.15% 9.50% 8.08% Indonesia JCI % -1.94% 21.59% 14.69% 20.71% Malaysia KLCI % -2.76% 0.35% -2.33% 1.65% Korea KOSPI % -2.36% 1.21% 1.94% 6.44% Philippines PSE % -5.38% 6.48% 8.65% 6.32% Singapore STI % -1.10% -1.44% -1.92% 1.61% Taiwan TAIEX % -2.28% 6.83% 6.77% 10.90% Thailand SET % -3.80% 7.04% 14.83% 18.51% Commodity Historical Returns (%) Oil % -7.62% -8.74% 16.17% 16.17% Gold spot % -2.66% 17.04% 23.44% 23.44% Page 4

5 Disclaimer Citi analysts refers to investment professionals within Citi Research ( CR ), Citi Global Markets Inc. ( CGMI ) 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. Such information is based on sources CGMI believes to be reliable. CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI'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. Some investment products (including mutual funds) are not available to US persons and may not be available in all jurisdictions. 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 Country Specific Disclosures Australia : This document is distributed in Australia by Citigroup Pty Limited ABN , AFSL No , Australian credit licence Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your particular circumstances. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product, and consider if it s suitable for your objectives, financial situation, or needs. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Past performance is not an indicator of future performance. Investment products are not available to US people and may not be available in all jurisdictions. Bahrain : This document is distributed in Bahrain by Citibank, N.A., Bahrain. Citibank, N.A., Bahrain, may in its sole and absolute discretion provide various materials relating to the securities for information purposes only. Citibank, N.A., Bahrain is licensed by the Central Bank of Bahrain as a Conventional Retail Bank and is bound by the CBB s regulations and licensing conditions with regards to products and services provided by Citibank, N.A. Bahrain. These terms are governed by and shall be construed in accordance with the laws of the Kingdom of Bahrain. The Customer irrevocably agrees that the civil courts in the Bahrain shall have non-exclusive jurisdiction to hear and determine any suit, action or proceeding and to settle any disputes which may arise out of or in connection with these Terms and Conditions and for such purposes the Customer irrevocably submits to the jurisdiction of such courts. Investment products are not insured by government or governmental agencies. Investment and Treasury products are subject to Investment risk, including possible loss of principal amount invested. Past performance is not indicative of future results: prices can go up or down. Investors investing in investments and/or treasury products denominated in foreign (non-local) currency should be aware of the risk of exchange rate fluctuations that may cause loss of principal when foreign currency is converted to the investors home currency. Investment and Treasury products are not available to U.S. persons. All applications for investments and treasury products are subject to Terms and Conditions of the individual investment and Treasury products. Customer understands 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 customer 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. Customer understands that Citibank does not provide legal and/or tax advice and are not responsible for advising him/her on the laws pertaining to his/her transaction. Citibank Bahrain does not provide continuous monitoring of existing customer holdings. Hong Kong : This document is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL"). Prices and availability of financial instruments can be subject to change without notice. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested. India : This document is distributed in India by Citibank N.A. Investment are subject to market risk including that of loss of principal amounts invested. Products so distributed are not obligations of, or guaranteed by, Citibank and are not bank deposits. Past performance does not guarantee future performance. Investment products cannot be offered to US and Canada Persons. Investors are advised to read and understand the Offer Documents carefully before investing. Indonesia : This report is made available in Indonesia through Citibank N.A., Indonesia Branch. Citibank N. A., Indonesia is a bank that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK). Korea : This document is distributed in South Korea by Citibank Korea Inc. Investors should be aware that investment products are not guaranteed by the Korea Deposit Insurance Corporation and are subject to investment risk including the possible loss of the principal amount invested. Investment products are not available to US persons. Malaysia : This document is distributed in Malaysia by Citibank Berhad. People's Republic of China : This document is distributed by Citibank (China) Co., Ltd in the People's Republic of China (excluding the Special Administrative Regions of Hong Kong and Macau, and Taiwan). Philippines : This document is made available in Philippines by Citicorp Financial Services and Insurance Brokerage Phils. Inc, and Citibank N.A. Philippine Branch. Investors should be aware that Investment products are not insured by the Philippine Deposit Insurance Corporation or Federal Deposit Insurance Corporation or any other government entity. For any concerns, you may contact us at (632) or send us a message through or us at ph.customer.service@citi.com. CFSI is regulated by the Securities and Exchange Commission with telephone number and Insurance Commission with telephone number Singapore : This report is distributed in Singapore by Citibank Singapore Limited ( CSL ). 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. Thailand : This document contains general information and insights distributed in Thailand by Citigroup and is made available in English language only. Citi does not dictate or solicit investment in any specific securities and similar products. Investment contains certain risk, please study prospectus before investing. Not an obligation of, or guaranteed by, Citibank. Not bank deposits. Subject to investment risks, including possible loss of the principal amount invested. Subject to price fluctuation. Past performance does not guarantee future performance. Not offered to US persons. Vietnam : This document is distributed in Vietnam by Citibank, N.A., - Ho Chi Minh City Branch and Citibank, N.A. - Hanoi Branch, licensed foreign bank s branches regulated by the State Bank of Vietnam. Investment contains certain risk, please study product s prospectus, relevant disclosures and disclaimers and the terms and conditions for details before investing. Investment products are not offered to US persons. United Kingdom : This document is distributed in U.K. by Citibank Europe plc, UK Branch. The registered address in the UK is Citibank Centre, Canada Square, Canary Wharf, London E14 5LB. Citibank Europe plc, UK Branch is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Page 5