The Investment Bank Outlook 10-08-2020

Trading Tips

RBC Capital Markets

Week ahead: US Democratic presidential candidate Biden is expected to announce his running‐mate this week, possibly as soon as today. According to the bookies, Kamala Harris is still runaway favourite at a 50% probability, ahead of Susan Rice (25%). US July retail sales are pick of this week’s data releases and should get a nice boost from the continued acceleration in vehicle sales, which rose in July to a 14.5m annualized pace from 13.2m in June. Beneath the surface, though, we look for a more modest gain of about 1.3% in the “control” measure. July CPI data (Wednesday) are the other first‐tier US release this week. Outside the US, the key release is Q2 GDP in the UK (see GBP) and we also have labour market data in the UK and Australia. RBNZ (Wednesday) is the only G10 central bank announcement this week. In EM, Mexico and Peru announce policy on Thursday.

JPY: It is already clear from the weekly data that Japanese investors returned as big buyers of foreign bonds in June and tonight’s monthly BoP data will detail where those purchases were concentrated. Recent months have seen a sharp pickup in demand for Australian bonds in particular.

NZD: RBNZ is universally expected to leave rates unchanged at the announcement on Wednesday. Attention will focus on the statement and in particular, whether RBNZ has anything further to say on the prospect of negative rates. The rapid reopening of economy should see a reasonably upbeat commentary otherwise.

GBP: June monthly and Q2 quarterly GDP are due on Wednesday. The May monthly GDP figure was a major surprise printing at 1.8% m/m versus our prerelease expectations for an expansion of 6.5% m/m. That left GDP some 24.5% below its pre‐crisis level at the end of May. The May GDP release means that the risks to our own longstanding forecast for the drop in Q2 GDP to be ‐18.7% q/q firmly tilted to the downside. This would be amongst the largest quarterly drops in Q2 GDP for developed countries that have reported so far (Spain was ‐18.5% q/q). Ahead of this release, labour market data are out on Tuesday, though the most important current feature of the UK labour market continues to take place away from the ONS’s monthly suite of labour market statistics. As of August 2nd, 9.6m workers, some 30% of all UK employees, were signed up to the government’s Coronavirus Job Retention Scheme. The scheme continues to mask the true labour market impact of the current crisis. Though we expect this month’s release to show a sizeable fall in employment alongside a tick‐up in unemployment, the true labour market impact of the current crisis will only become clear as the scheme is wound down.

AUD: Labour market data re due Wednesday (wage price index) and Thursday (employment). The latter are likely to reflect the resumption of Stage 3 restrictions in Greater Melbourne from 8 July and our economists look for a decline of 75K. RBA will have chance to reflect on the economic impact of measures in Victoria in his semi‐annual testimony on Friday.


It’s been a quiet start to the week, with Singapore and Japan both out for the holidays. Treasuries have yet to trade with Asia markets happy to range trade overnight.

Risk markets will be keenly observing headlines on two fronts this week – US/China tensions and Phase 4 progress. Downside risk remains prominent for the former, with a number of sources. However the implications for USDCNH remain limited for now. Data is not the primary driver of markets today – China inflation prints came roughly in line with expectations, while NOK CPI is the only highlight of the European session.

CitiFX Strategy remain constructive but are mindful of the risk of setbacks. Risk assets remain relatively immune to seasonality and US-China tensions, largely supported by further stimulus (either through executive action or a Congressional bill) and still defensive positioning. We remain bearish USD.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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