The Investment Bank Outlook 04-05-2020

<p>In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.</p>
<p><strong>RBC</strong></p>
<p><strong>Week ahead:</strong> After the RBA tonight, the BoE and Norges Bank announce policy decisions later this week (both Thursday). In EM, Brazil and Chile announce rates on Wednesday. US April payrolls (Friday) dominate the data calendar. Initial jobless claims were already in the neighborhood of 20 million by the time the survey week for employment rolled around (the week that includes the 12th of the month). We also know that the seasonal hurdle is quite high at nearly one million jobs. Some offset will come from lock‐down‐related hiring. So payrolls should come in around –20 million given the moving parts we have a good handle on. The unemployment rate is set to spike to about 17%. Outside the US, employment data are also due in Canada (see CAD).</p>
<p><strong>AUD:</strong> The RBA announces tonight and there are unlikely to be any policy changes, with a clear message that the RBA remains willing and able to lend further support if necessary, consistent with the communication from global central banks. We expect an update on two key developments. Firstly, the RBA will likely give more detail on the macro view outlook consistent with the Governor’s recent speech suggesting 6% contraction in GDP in 2020 and a 6–7% bounceback in 2021. There will be further details in Friday’s SoMP, which is likely to contain a sharply condensed set of Forecasts. Secondly, there will be a further assessment of the YCC/QE program amid a continued moderation in buying recently.</p>
<p><strong>GBP:</strong> The UK lockdown is due for formal review on Thursday, the same day as the BoE policy announcement. Our economists recently set out their view that the Bank of England will expand its QE programme by a further GBP200bn. However, we don’t see that announcement coming just yet and expect the MPC to hold off until its next meeting on June 18. As a result, we don’t expect any fresh policy announcements from the MPC at this week’s meeting. The focus instead is likely to be on the latest version of the Bank’s MPR, in which it will set out its first detailed assessment of the impact of the COVID‐19 outbreak on the UK economy.</p>
<p><strong>NOK:</strong> Norges Bank is widely expected to keep rates at 0.25% on Thursday, though there is minority expectation of a cut to zero. The 12 % (import‐weighted) decline in NOK in 2020 so far argues against further action at this stage.</p>
<p><strong>JPY:</strong> Golden week holidays will keep Japanese markets quiet all week and there are no key data or events scheduled.</p>
<p><strong>CAD:</strong> April employment data are due on Friday. We know that the just over 1mn fall in employment in March was just the tip of the iceberg and we see about a 5mn follow‐up drop in April. Applications to federal government support programs imply such a magnitude, but translating this to the unemployment rate is less clear. Our best estimate is that the unemployment rate roughly doubles (from 7.8% to 15.0%). March trade data are also due (tomorrow).</p>
<h2>Citi</h2>
<p><strong>Bullish:</strong></p>
<ul>
<li><strong>USD:</strong> We have a bullish bias for the USD this week, especially as month-end selling is out of the way and USD positioning is more neutral. USD also tends to appreciate in May, even though we do not know of a good reason why (alongside several other May seasonality patterns). The fall in USD Libor is only modestly USD-negative.</li>
<li><strong>NOK:</strong> We don’t expect new measures at Thursday’s Norges Bank meeting even though some risk of a rate cut is priced.</li>
</ul>
<p><strong>Bearish:</strong></p>
<ul>
<li><strong>EUR:</strong> vs G10 safe havens, even though EUR likely holds up in broad terms in risk-off.</li>
<li>Tiff Macklem was announced as new BoC governor but we mostly expect policy continuity.</li>
<li><strong>GBP:</strong> as no Brexit extension risk still remains mispriced. We don’t expect new BoE measures on Thursday even though the BoE may well point to higher QE in the future.</li>
<li><strong>AUD:</strong> While we are structurally bullish, current positioning and risk-off markets leave us preferring to buy dips (especially using risk reversals given skew) rather than chasing the move at current levels. The RBA on Tuesday is likely to leave the statement largely</li>
</ul>
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