The Investment Bank Outlook 20-04-2020

<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>Overnight, we have seen the <strong>USD</strong> marginally bid vs G10 FX, with <strong>commodity</strong> currencies under-performing on the 19% down move in front-month <strong>WTI</strong> futures to below $15/bbl. Key technical levels breaking, concerns over demand destruction and immediate term storage capacity are the drivers here overnight. <strong>MXN</strong> has been a particular under-performer on this oil move as well as news late Friday that Pemex had been downgraded to HY by Moody’s. <strong>NOK</strong> and <strong>CAD</strong> have also slipped with this. Elsewhere in <strong>EM FX</strong> , it has been fairly quiet as the market awaits new catalysts. <strong>ZAR</strong> could be in for some volatility though with a final cabinet meeting on fiscal measures due today. <strong>USD</strong> and <strong>INR</strong> are also on fiscal headline watch.</p>
<p>Data wise, we saw <strong>CNY</strong> cut the 1y LPR by 20bps (5y by 10bps). Ahead though, it’s fairly quiet, with <strong>USD</strong> sentiment data due. Note also that the Fed will slow treasury buying today from USD30bn to USD15bn per day. <strong>GBP</strong> sees Brexit talks resume. In EM, <strong>PLN </strong>employment and <strong>ILS</strong> central bank minutes are due.</p>
<p>In FX space, commodity currencies were understandably lower, but have since retraced weakness. <strong>AUD</strong> is marginally lower at 0.6360 (-0.1%) while <strong>NOK</strong> is a steeper under-performer, down 0.7% vs the USD at 10.40. <strong>CAD</strong> too has softened, with USDCAD trading up 0.5% to 1.4070. <strong>NZD</strong> is outperforming on re-opening headlines outlined below.</p>
<p>In <strong>vol</strong> space, our trader comments that it feels like the market had already priced in significantly lower oil though, with nothing major going on apart from a little activity in AUD and CAD structures.</p>
<p>Elsewhere, the <strong>USD</strong> has also been bid to varying degrees vs other G10 and the EM FX complex (to a lesser degree), with <strong>USDJPY</strong> up 0.3% to 107.8, while <strong>EURUSD</strong> is down 0.1% at 1.0865 at the time of writing. Markets appear to be struggling for direction at the moment absent new catalysts. <strong>Equities</strong> are also in a holding pattern with S&amp;P futures marginally down on the day at 2866 at the time of writing. Earnings this week will continue to inform.</p>
<h2>JP Morgan</h2>
<p><strong>EUR</strong></p>
<p>Euro is opening softly in London, although most of the headlines this morning are around the latest plunge in oil. While storage issues are a big part of that story, the lack of underlying global demand cannot really be overstated. While the news around peaking/decline in new COVID-19 cases generally has been good in major regions, the economic impact of this crisis is still not fully known, and in my view this will make further material gains in risk sentiment hard to achieve from the current levels. The euro has remained generally sluggish throughout April, albeit it is not moving very much this month. Our strategy team has revised down its year-end forecast to 1.06, citing concerns around growth and debt levels. On the latter point, the S&amp;P review of Italy’s BBB rating this week will be in focus. I continue to struggle to see a material bounce in the euro despite some of the more positive headlines recently about peak declines and re-opening plans. I would therefore advocate a sell-rallies stance, keying on 1.0900/15 in the near term.</p>
<p><strong>GBP</strong></p>
<p>Cable’s whippy short term range around 1.25 continues, but otherwise it’s a directionless market with EURGBP barely moving in recent sessions and, more generally, the market in waiting mode regarding when the Covid-19 situation will improve to the extent that lock-down measures (both UK and global)can be lessened/lifted. That process will take some time, so these meandering markets will likely remain in place for several days, maybe weeks, yet. We remain short term neutral with a bias to the downside longer term.</p>
<p><strong> JPY</strong></p>
<p>Very quiet open and session overnight, despite another headline grabbing drop in oil markets (although amplified most in US WTI and the front contract). The virus numbers continue to show signs of improvement, and we are moving closer to lock-downs being lifted, however the huge question is how the virus numbers will respond. We will get little visibility on this for some time, but it will be crucial in determining the shape of the recovery (in the absence of the vaccine); while stocks seem to be pricing something closer towards a V, it is certainly not my base case, so I am still leaning defensively. USDJPY remains stuck on a 107 handle and we are trading the tight range with a short bias. A break and close below 107 will see us get a little more excited about the downside. 106.90/107.00 remains very good support with 106.10/20 below while 108.10/20 remains resistance with 108.50/60 above, very little on the calendar today.</p>
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