The Investment Bank Outlook – 11-05-2020

<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>
<h2>Citi</h2>
<p>Our cautious expectation for markets expired on Monday even though our expectations for USD strength still materialized. Equity markets continue to grind higher. Light positioning, potential for CTAs to flip from short to long, and easing of lockdowns could sustain the rally. High frequency mobility data appears to have bottomed in the US and elsewhere should rise as some states reopen on Friday. Meanwhile, we don’t think policy will add much stimulus in the near-term and positioning appears to get less light, so we still prefer not to chase this rally.</p>
<p><strong>USD</strong>: Vice President Mike Pence is not in quarantine and plans to be at the White House on Monday, a spokesman said on Sunday, despite media reports that Pence was self-isolating after a staffer tested positive for the novel coronavirus. New York Governor Cuomo said he would on Monday release more details on how the state would begin to reopen.</p>
<p><strong>EUR:</strong> We remain in the middle of the 1.08-1.09 range at 1.0850 at the time of writing. As a reminder, last week we were looking for a break of either side of the range for a sign of direction from here. Catalyst wise this week, there is little EUR specific that will likely move the needle so we remain neutral now.</p>
<p><strong>GBP</strong>: Elsewhere, U.K. PM Johnson stressed there would be no immediate end to the lockdown as he detailed the initial steps to kick starting the economy on Sunday.</p>
<h2>RBC Capital Markets</h2>
<p><strong>Week ahead:</strong> April US Retail sales (Friday) are pick of the week’s data releases and are expected to show another sharp monthly decline. Ahead of that, we have April CPI and PPI. The weekly jobless data should show claims slowing significantly in the latest week. RBNZ (Wednesday) and Banxico are the only central banks that are scheduled to announce policy this week. Australia’s labour market data are the key release in the rest of the world.</p>
<p><strong>GBP:</strong> In his address last night, PM Johnson set out the broad terms and conditions under which the UK will start to relax the lock down. Further clarification will follow today with the release of a 50 page document and a statement to the Commons. This week we get GDP data for March and for Q1. The UK lockdown was announced on March 23, so March data only cover the last week of the quarter. In reality, however, activity had already began to slow in advance of the government’s official announcement. On March 16, people were asked to avoid ‘unnecessary travel’ as well as ‘pubs, clubs, theatres, and other such social venues.’ That saw a large switch to working from home and a big drop‐off in the hospitality sector even before the lockdown officially came into force. Our economists look for a m/m contraction of 10% in GDP in March to leave GDP for Q1 as a whole down 3.2%.</p>
<p><strong>AUD:</strong> The new partial indicators and government data on applications for unemployment benefits (JobSeeker payments) paint a very sobering picture for the labour markets in April. RBC economists look for a historically large drop of ‐600K in employment in April, with some risk that it is an even larger decline.</p>
<p><strong>JPY:</strong> The BoJ Summary of Options for the April 27 meeting show broad agreement that more easing as needed, but no strong consensus on what form that easing should take.</p>
<p><strong>NZD:</strong> ANZ Business confidence rebounded in May (‐45.6 from ‐66.6), but remains deeply depressed by historical standards.</p>
<p><strong>CAD:</strong> Thursday’s annual BoC Financial System Review should provide some information on household finances into the early stages of the COVID‐19 lockdown. What the BoC has highlighted as vulnerabilities for some time— elevated household debt and high house prices in some markets—are exactly what can make a downturn more pronounced. The unprecedented loss of jobs and output has been met by unprecedented measures from fiscal authorities, however. The BoC’s actions, notably term repos and asset purchases, have also ensured that the financial system continues to function properly. How quickly lost jobs are recovered as the economy slowly re‐opens and the state of household finances on the other side will figure prominently in a recovery where consumption should struggle to gain traction and housing prices will face a stern test. The associated press conference will be Governor Poloz’s penultimate appearance before he gives way to incoming Governor Tiff Macklem for the June 3rd policy meeting.</p>
<p><b><i>Disclaimer: The material provided is for information purposes only and shoul</i></b><b><i>d 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.</i></b></p>
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