Citi

The week has started with clear USD weakness and risk-on with Asia equities in the green. Primary drivers behind this appear to be: 1) No imminent lockdown risk in the US after President Trump and President-elect Biden ruled this out over the weekend; 2) waning US election risk; 3) expectations for further vaccine headlines this week, this time from Moderna.

In terms of price action, AUD, NZD and NOK outperform in G10, with GBP close behind. EM FX has seen larger moves, with KRW testing 1105 earlier in the day before verbal intervention. CNH, THB, MXN and ZAR also all benefit from the reflation narrative.

Bigger picture, CitiFX Strategy reiterates its medium-term bearish view on USD, which is a key focus for us into this week, year-end and 2021. USD downside is linked to the global recovery, the global search for value, and diversification. Increased hedging of US FX risk by global investors can reinforce the downtrend in 2021, particularly if US rates curves steepen further.

RBC Capital Markets

Week ahead: EU-UK trade talks continue in a race against time. The OPEC+ committee meeting on Tuesday is expected to provide further indication if the group was moving closer to delaying the scheduled January output relaxation. CPI inflation data are due from Japan, Canada, the euro area and the UK. The main US data releases include retail sales and industrial production (both Tuesday). There has been steady sequential gains in retail sales in recent months, and we expect the same outcome in the coming report. We forecast headline sales rising +0.4% m/m, but the crucial retail control measure (ex-autos, gas & building materials) should gain of +0.5%. Daily credit card spending has remained quite buoyant in October (the reporting month), but with many states implementing social restrictions, we would not be surprised to see some slowing in spending through the immediate term.

EUR: ECB President Lagarde will feature at a public hearing of the European Parliament (Thursday). JPY: Japan October CPI will be out on Thursday, and a further decline into negative readings for both headline and core CPI is expected.

NOK/SEK: The data releases from Scandinavia this week include Norway Q3 GDP (Tuesday) and Sweden unemployment rate (Thursday).

GBP: A combination of a reduced drag from petrol prices and the large drop in second-hand car prices seen in autumn last year should see transport make a positive contribution again this month, pushing October CPI marginally higher to 0.6% y/y (Wednesday).

AUD: Two speeches from RBA Governor Lowe (Monday & Tuesday) are in focus. We expect the Governor to highlight a strengthening recovery and encouraging vaccine news but note ongoing risks. The audience for both functions is skewed towards the corporate sector, but there will be a Q&A session following the CEDA speech that could see more market-specific questions. Leading weekly payroll data indicates that the labour market weakened a little further again in October. We expect a 30k drop in October employment (Thursday), propelling the unemployment rate slightly higher to 7.0%. This should however represent the tail-end of the negative impact from Victoria’s lockdown.

CAD: All three of the September monthly sales releases feature in a busy week for Canadian data, though they will take a backseat to the rising COVID-19 case counts. Our tracking suggests that manufacturing (Monday, +1.5%), wholesale (Tuesday, +0.4%), and retail (Friday, 0.0%) sales should all match their earlier ‘flash’ estimates. Looking ahead, while activity has predictably slowed in the hospitality sector alongside greater restrictions across much of the nation, overall retail sales activity should be around flat in October as well. See RBC Economics’ latest Consumer Spending Tracker for more details. Our economists forecast a 0.3% m/m rise in October headline CPI, which would leave the YoY rate steady at +0.5%. The BoC’s three core measures have held up very well during the pandemic (1.73% average in September) alongside sizable federal fiscal supports that have been extended into 2021. We see the core measures falling over time but anticipate little change in October itself.

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