May 18th, 2015 FX Market Headlines United States United Kingdom Eurozone Japan Australia
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FX Forecasts (April 2015): Quarterly Forecasts Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 G10 Euro EURUSD 1.15 1.09 1.03 1.00 1.01 1.03 1.04 1.05 1.06 Japanese Yen USDJPY 119 122 124 125 125 125 125 125 125 British Pound GBPUSD 1.62 1.56 1.5 1.47 1.48 1.49 1.49 1.5 1.5 Swiss Franc USDCHF 0.91 0.97 1.02 1.05 1.04 1.02 1.01 1 1 Australian Dollar AUDUSD 0.82 0.79 0.75 0.73 0.72 0.71 0.71 0.70 0.70 New Zealand Dollar NZDUSD 0.73 0.73 0.72 0.72 0.71 0.71 0.71 0.70 0.70 Canadian Dollar USDCAD 1.2 1.22 1.24 1.25 1.25 1.25 1.25 1.25 1.24 Dollar Index DXY 92.7 96.8 101.2 103.3 102.5 101.8 101.1 100.4 99.4 G10 Crosses Japanese Yen EURJPY 137 133 128 126 127 128 129 131 132 British Pound EURGBP 0.71 0.7 0.69 0.68 0.69 0.69 0.69 0.70 0.7 Swiss Franc EURCHF 1.05 1.06 1.05 1.05 1.05 1.05 1.05 1.05 1.06 Swedish Krona EURSEK 9.43 9.32 9.21 9.14 9.12 9.10 9.08 9.06 9.04 Norwegian Krone EURNOK 8.31 8.39 8.46 8.46 8.38 8.30 8.22 8.14 8.09 Norwegian Krone NOKSEK 1.13 1.11 1.09 1.08 1.09 1.10 1.11 1.11 1.12 Australian Dollar AUDNZD 1.13 1.08 1.04 1.01 1.01 1.01 1.00 1.00 1.01 Australian Dollar AUDJPY 98.3 95.5 92.7 90.9 9.1 89.4 88.6 87.9 87.9 Asia Chinese Renimbi USDCNY 6.22 6.23 6.24 6.25 6.26 6.28 6.29 6.30 6.29 Hong Kong Dollar USDHKD 7.75 7.77 7.78 7.79 7.79 7.79 7.79 7.79 7.79 Indonesian Rupiah USDIDR 13218 13331 13444 13451 13351 13249 13148 13049 12958 India Rupee USDINR 64.1 64.4 64.8 65.0 65.0 65.0 65.0 65.0 64.5 Korean Won USDKRW 1102 1115 1128 1132 1125 1117 1110 1103 1095 Malaysian Ringgit USDMYR 3.61 3.67 3.72 3.75 3.74 3.72 3.71 3.70 3.67 Philippine Peso USDPHP 44.9 45.3 45.8 45.9 45.7 45.5 45.3 45.1 44.8 Singapore Dollar USDSGD 1.35 1.36 1.37 1.38 1.38 1.37 1.37 1.37 1.36 Thai Baht USDTHB 33.7 34.0 34.3 34.4 34.2 34.0 33.8 33.6 33.3 Taiwan Dollar USDTWD 31 31.3 31.6 31.8 31.7 31.6 31.6 31.5 31.4 EMEA Czech Koruna EURCZK 27.42 27.53 27.64 27.59 27.37 27.15 26.93 26.71 26.5 Hungarian Florint EURHUF 308 311 314 315 316 318 319 320 320 Polish Zloty EURPLN 4.1 4.12 4.14 4.14 4.11 4.07 4.04 4.01 4.00 Israeli Shekel USDILS 3.87 3.96 4.05 4.09 4.07 4.05 4.03 4.01 3.97 Russian Rouble USDRUB 49.9 52.7 55.6 56.9 56.8 56.6 56.5 56.3 55.5 Russain Rouble Basket RUBBASK 53.2 54.7 56.2 57.0 57.1 57.3 57.4 57.5 56.9 Turkish Lira USDTRY 2.66 2.72 2.77 2.81 2.83 2.85 2.87 2.89 2.9 South African Rand USDZAR 12.15 12.45 12.75 12.86 12.78 12.7 12.62 12.54 12.42 LATAM Brazilian Real USDBRL 3.12 3.23 3.34 3.39 3.36 3.32 3.29 3.26 3.24 Chilean Peso USDCLP 616 624 631 635 634 632 631 630 624 Mexican Peso USDMXN 15.3 15.3 15.4 15.3 15.1 14.9 14.8 14.6 14.4 Colombian Peso USDCOP 2415 2509 2603 2645 2635 2625 2615 2605 2566 Source: Citi Research 15/05/15
Structural economic changes weigh on inflation United States: Citi analysts believe globalization, particularly the increased foreign production of domestically consumed goods, appears to have flattened the US Phillips Curve by altering the relationship between labor market slack and consumer prices. As more goods production occurs abroad, those formerly employed in domestic goods-producing sectors have migrated into the service sectors. Citi analysts believe this has contributed to a glut of workers seeking employment in the low-wage service sectors. Consequently, Citi analysts believe wage pressures have eased structurally (despite the decline in the unemployment rate) as workers compete for available jobs. This structural change to US consumer price determination could be one reason why the FOMC s (Federal Open Market Committee) inflation projections have been consistently too optimistic for the past 4 years. United Kingdom: Do not expect unbudgeted fiscal tightening UK governments have announced substantial extra fiscal tightening especially tax hikes in the year after each of the last five elections (1992, 1997, 2001, 2005, 2010). A rerun, if it happens, would clearly pose a downside risk to the economy. However, in contrast to that historical pattern, Citi analysts expect that the recent election will not be followed by more fiscal tightening than already contained in the pre-election Budget plans. Hence, fiscal policy is unlikely to pose a threat to the expansion There is no hidden black hole in the public finances, and Citi analysts see the fiscal deficit as likely to continue to undershoot official forecasts. Moreover, the pre-election Budget plans already included enough fiscal restraint in coming years to meet the government s existing fiscal targets and the tougher fiscal target likely to be introduced soon. The government is unlikely to aim to front-load fiscal tightening to a greater extent, because of the risk that such a policy could derail the recovery and thereby make it harder to win an EU referendum (expected in 2017 or so). Eurozone: Spanish regional elections could give a preview to national elections later 2015 Spain will hold regional elections in 13 (out of 17) regions on 24 May. The electoral contest will be important for the political and fiscal outlook of Spain both near term and long term given i) the large degree of fiscal autonomy enjoyed by the Spanish regions and ii) the short period to the national parliamentary elections due by December 2015. The regional ballot is likely to confirm the fracturing of Spain s two-party system increasing risks of hung regional parliaments. This could increase political uncertainty across regions and limit potential legislative initiatives (including those related to fiscal consolidation) in the years ahead, in Citi analysts view. Regional elections could be a preview of national elections due by December 2015. The rise in support for political alternatives suggests political fragmentation could likely become a feature of Spain s political landscape, increasing risk of political inaction. Yet, electoral surprises (as seen in the UK
national elections) cannot be ruled out, given the sharp improvement in economic conditions. Japan: Citi Analysts expect a slow in GDP Citi analysts estimate that Q1 consumer spending grew only QoQ. This would be slower than the 0.5% gain in the fourth quarter of 2014. If Citi analysts are correct, consumer spending in the first quarter would be 2.0% lower than the level in the fourth quarter of 2013, before frontloaded demand ahead of the tax hike accelerated. Private consumption appears to be weaker than suggested by improving labour and income conditions with total real employment income (per-capita wages times employment divided by CPI) this March expected to have largely returned to the pre-tax hike levels. This picture stands in a stark contrast with the fact that real consumer spending remains well below pre-tax hike levels. in part because of weaker consumption Spending by pensioners may be the culprit behind sluggish consumer spending. Pensioners weighting in the total population rose to 31% in fiscal year 2013 from 21% in 1997, suggesting an increasing impact from spending by pensioners on overall consumer spending. But the real purchasing power of pensioners fell 4.2% in 2014 due to the consumption tax hike and modest cuts in public pensions. In fiscal year 2015, the public pension will be raised by 0.9%, the first increase in 16 years, starting in June. If inflation remains close to zero this year, the public pension would increase in real terms for the first time since 2010. However, if the CPI rises around 1%, as the BoJ currently anticipates, the real purchasing power of pensioners would remain largely flat. This might lead to another undershooting of consumer spending versus the Bank of Japan s optimistic view. Australia: Concerns in property market Citi analysts forecast that the prudential regulators will have to change their tact in dealing with an overheating housing market. The rate cuts already imposed this year heighten risks around lending standards in terms of credit growth and loan quality. Housing markets in Sydney and Melbourne remain overheated.
The Week Ahead US Tuesday 19th May Forecast Last 8:30 Housing Starts (Apr) 1,020K 926K Permits 1,060K 1,042K Thursday 21st May Forecast Last 8:30 Initial Jobless Claims (May 16) 270K 264K 10:00 Beneficiaries (May 9) Existing Home Sales (Apr) Leading Indicators (Apr) 2.27M 5.25M 0.4% 2.22M 5.19M Philadelphia Business Survey (May) 6.0% 7.5% Friday 22nd May Forecast Last 8:30 Consumer Price Index (Apr) 0.1% Ex Food and Energy Source: Citi Research and Bloomberg UK Tuesday 19th May Forecast Last Consumer Prices (Apr) 0.3% MM, -0.1% YY 0.3% MM, MM, 0.0% YY Ex Food, Drink, Tobacco, Energy (Apr) Retail Prices (Apr) RPIX Ex Mortgages (Apr) Producer Input Prices (Apr) Producer Output Prices (Apr) Output Prices Ex Tax (Apr) Ex Food, Drink, Tobacco, Energy (Apr) 0.8% YY 0.5% MM, 1.0% YY 0.5% MM, 1.0% YY 1.0% MM, - 1 YY 0.0% MM, -1.7% YY 0.0% MM, -1.4% YY 0.0% MM, 0.1% YY MM, 1.0% YY MM, 0.9% YY MM, 0.9% YY 0.3% MM, -13.0% YY MM, -1.7% YY 0.3% MM, -1.4% YY 0.0% MM, 0.1% YY Thursday 21 st May Forecast Last Retail Sales Volumes (Apr) CBI Industrial Trends Survey (May) Monthly Output Expectations Net Bal. (May) Monthly Order Books Net Balance (May) Monthly Selling Prices Net Balance (May) 1.0% MM, 4.4% YY 22% 2% -1% Prior: -0.5% MM, 4.2% YY Friday 22 nd May Forecast Last Public Sector Net Borrowing (Apr) 8.3bn deficit, 8.3 billion deficit 9.3bn deficit, 9.3 billion deficit (Ex Public Sector Banks) Service Sector Output (Mar) fiscal year to date 0.4% MM, 3.0% YY fiscal year to date 0.3% MM, 3.2% YY 16% 1% -3% Source: Citi Research EUR Monday 18th May Forecast Last 08:15 09:00 Switzerland: Retail Sales, Mar Italy: Trade Balance, Mar Tuesday 19 May Forecast Last 07:00 EU-27: New Car Registrations, Apr 09:30 UK: Consumer Prices, Apr 0.3% MM, -0.1% YY MM, 0.0% YY CPI Ex Food, Drink, Tobacco, Energy, Apr 0.3% MM, 0.8% YY MM, 1.0% YY Retail Prices, Apr 0.5% MM, 1.0% YY MM, 0.9% YY RPIX Ex Mortgages, Apr 0.5% MM, 1.0% YY MM, 0.9% YY 09:30 UK: Producer Input Prices, Apr 1.0% MM, -1 YY 0.3% MM, -13.0% YY 09:30 UK: Producer Output Prices, Apr 0.0% MM, -1.7% YY MM, -1.7% YY Excluding Tax, Apr 0.0% MM, -1.4% YY 0.3% MM, -1.4% YY Ex Food, Drink, Tobacco, Energy, Apr 0.0% MM, 0.1% YY 0.0% MM, 0.1% YY 10:00 Germany: ZEW Current Situation, May 60.0 70.2 ZEW Economic Sentiment, May 50.0 53.3 10:00 Euro Area: HICP, Apr Final 1.1% MM, -0.1% YY 0.6% MM, -0.3% YY 10:00 Euro Area: Trade Balance, Apr Wednesday 20 May Forecast Last 07:00 Germany: Producer Prices, Apr 08:30 Sweden: LFS Unemployment Rate, Apr 7.6% NSA, 7.3% SA 8.0% NSA, 7.6% SA
09:00 Norway: Mainland GDP, 1Q 0.5% QQ 0.5% QQ 09:30 UK: MPC Minutes of 8 May Meeting 09:30 UK: BoE Agents Summary of Business Conditions, May 10:00 Euro Area: Construction Output, Mar Spain: Trade Balance, Mar Thursday 21 May Forecast Last 08:30 Netherlands: Unemployment, Apr 09:00 Italy: Contractual Wages, Apr 09:00 Euro Area: Manufacturing PMI, May Flash 52.4 52.0 Services PMI, May Flash 54.1 54.1 Composite PMI, May Flash 54.1 53.9 09:00 Euro Area: Monthly Balance of Payments (ECB), Mar 09:30 UK: Retail Sales Volumes, Apr 1.0% MM, 4.4% YY -0.5% MM, 4.2% YY 09:30 UK: Migration Statistics 10:00 Italy: Current Account Balance, Mar 11:00 UK: CBI Industrial Trends Survey Output Expectations, May +22% +16% CBI Order Books, May +2% +1% CBI Selling Prices, May -1% -3% 11:00 Ireland: Quarterly National Household Survey Unemployment Rate, 1Q 12:30 Euro Area: ECB Account of Monetary Policy Meeting on Apr 15 15:00 Euro Area: Consumer Confidence, May Flash -4.1-4.6 Friday 22 May Forecast Last 07:00 Germany: GDP Details, 1Q 0.3% QQ, 1.2% YY 0.7% QQ, 1.5% YY 07:45 France: Manufacturing Confidence, May 101 101 Own-Company Production Outlook, May 9 6 08:30 Netherlands: Consumer Confidence, May 08:30 Netherlands: Consumer Spending, Mar 09:00 Germany: ifo Business Climate, May 108.8 108.6 09:00 Italy: Industrial Orders, Mar 09:30 UK: Public Sector Net Borrowing, ex Public Sector Banks, Apr 8.3 Billion Deficit Year Ago: 9.3 Billion Deficit 10:00 Italy: Retail Sales, Mar 14:00 Belgium: Consumer Confidence, May Sources: National statistical offices, central banks and Citi Research. JPY Monday 18th May Forecast Last 8:50 Tertiary Industry Activity Index (Mar) 0.5% MoM; -1.2% YoY 0.3% MoM; -0.4% YoY Wednesday 20th May Forecast Last 8:50 Real GDP 1st Preliminary Estimate (Q1) 0.4% SA QoQ; 1.4% SAAR 0.4% SA QoQ; 1.5% SAAR Thursday 21st May Forecast Last 8:30 All Industry Activity Index (Mar) 0.1% MoM; -1.2% YoY - MoM; -1.3% YoY Sources: Ministry of Economy, Trade and Industry, Ministry of Land, Infrastructure, Transport and Tourism, Ministry of Internal Affairs and Communications, Ministry of Health, Labor and Welfare, Citi Research. AUD Tuesday 19 th May Forecast Last 11:30 RBA Board minutes 1.0% 1.2% Source: Citi Research