Please note and carefully read the Important Disclosure on the last page Daily FX & Market Commentary Oct 28, 2014 Published from Tuesday to Friday Market Recap • U.S. stocks rose little: S&P 500 slightly gained 0.1% yesterday as the markets take a breather from its best weekly gain last week since Jan. 2013 and as Brent oil price continue its slide to a 28-month low. • Hong Kong stocks fell: Hang Seng Index fell 0.7% as Hong Kong Exchanges and Clearing said last Sunday that there is no firm date for the launch on Shanghai and Hong Kong Stock Connect. Hong Kong Exchange and Clearing (388) fell 4.7% but overall market turnover remained low at HK$56.7bn. • Brazil stocks fell: The Ibovespa index fell 2.8% after President Dilma Rousseff got reelected on Sunday spur some investors’ concerns about challenges down the road for Brazil in carrying out economic reforms. Table: Daily Market Movement (Oct 27, 2014) Equity Market Indices U.S. S&P 500 Index Dow Jones Industrial Average NASDAQ Composite Index Europe Stoxx Europe 600 Index DAX Index Japan TOPIX Index Nikkei 225 Stock Average China / Hong Kong Hang Seng Index Hang Seng China Enterprises Shanghai SE Composite Close Change 1,961.63 16,817.94 4,485.93 -2.9 +12.5 +2.2 325.10 8,902.61 -2.1 -85.2 1,254.28 15,388.72 +12.0 +97.1 23,143.23 10,311.58 -159.0 -80.1 2,290.44 -11.8 % Commodity Futures Energy & Metals -0.2% WTI Crude Oil (USD/bbl) +0.1% Brent Crude (USD/bbl) +0.0% Natural Gas (USD/MMBtu) COMEX Gold (USD/oz) -0.6% LME Copper (USD/MT) -0.9% Bond Yields & CNY U.S. Treasuries - Yields +1.0% 3-Month - Yield (%) +0.6% 5-Year - Yield (%) 10-Year - Yield (%) -0.7% 30-Year - Yield (%) -0.8% USD/CNY -0.5% China Renminbi Spot Close 81.00 85.83 3.56 1,229.3 % 0.0% -0.3% -1.7% -0.2% 6,690.0 0.0% Close Change 0.00 0.01 -0.01 1.49 -0.01 2.26 -0.01 3.04 Close % 6.12 0.0% Data Source: Bloomberg L.P. Hot News: Markets fell after Brazil’s President Re-election Chart: Bovespa Index Bovespa has dropped 18% Citi analysts’ view: from September ’s high • With the elections behind us, a downgrade in rating 60000 is possible by the rating agencies. If the government does not respond quickly with concrete 55000 signals of fiscal restraint, those risks increase. 50000 • Citi analysts maintain the view that the central bank may attempt a couple more hikes to counter 45000 inflationary pressures. • In terms of economic activity, Citi analysts forecast 40000 10/13 12/13 02/14 04/14 06/14 08/14 10/14 of 1% growth in 2015, but recognize that business confidence needs to be closely monitored as it Source: Bloomberg L.P., as of Oct 27, 2014 could undermine any investment recovery. Brazilian stocks and currencies plunged : • On currency, while the election also added some • President Dilma Rousseff, was re-elected on Oct 26, extra volatility, the long run direction towards winning 52% of the vote, while Senator Aecio Neves depreciation may continue. The BRL may reach obtained 48%. 2.55 by end-2014 and 2.70 by end-2015. • Brazil’s Ibovespa dropped 2.8% yesterday, after falling • Citi analysts maintain an underweight in Brazilian 6.8% last week, on speculation that the Brazilian equities. Citi analysts will keep both stocks economy will remain stalled and inflation will stay above target after Rousseff won re-election (Chart). valuation and political/economic developments in Brazil’s real dropped to a nine-year low. mind in an ongoing assessment of the weighting. 65000 © 2014 Citibank Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited 1 Please note and carefully read the Important Disclosure on the last page Daily FX & Market Commentary FX & Commodity Technical Corner YESTERDAY PERFORMANCE FX TREND TECHNICAL CCY USD EUR/USD USD/JPY GBP/USD USD/CAD AUD/USD NZD/USD USD/CHF USD/SGD GOLD Close Price Day High Day Low 85.50 1.2698 107.82 1.6120 1.1247 0.8802 0.7894 0.9496 1.2745 1226.55 85.72 1.2723 108.38 1.6147 1.1255 0.8825 0.7903 0.9521 1.2764 1232.20 85.41 1.2666 107.61 1.6079 1.1213 0.8789 0.7846 0.9477 1.2739 1225.45 Short Term Comment Neutral Bearish Bullish Neutral Neutral Neutral Neutral Neutral Neutral Neutral Support Resistance 82.67 1.2501 106.55 1.5875 1.1082 0.8579 0.7709 0.9156 1.2590 $1,182 87.59 1.2910 110.09 1.6227 1.1500 0.8899 0.8052 0.9839 1.2860 $1,273 Citi Foreign Exchange Forecast: 0-3 Months 87.59 1.23 109.00 1.60 1.15 0.86 0.77 0.98 1.28 1200 6-12 Months 92.65 1.15 115.00 1.51 1.18 0.80 0.72 1.05 1.30 1240 FX Rate Source: Bloomberg L.P. (cut off time is NY Time 5:00pm) • USD fell: U.S. Markit Service PMI fell from 58.9 to 57.3 in Oct, trailed market expectations. • USD/JPY dropped on dollar’s weakness yesterday due to the weak U.S. service and composite PMI. • EUR pared gains: German IFO Business Climate Index plunged from 104.7 to 103.2 in Oct, trailed estimates. Daily FX Focus EUR/USD may test lower to 1.2501: 1.2800-1.2910 (downtrend channel top & 55MA) 1.2501 (Oct low) Source: Bloomberg L.P., data as of Oct 28, 2014 EUR Outlook: • Concern over weakening German economy may restrain the EUR. In fact, Citi’s Economic Surprise Index in Europe fell to -40.5, the lowest among other major nations. • The ECB and EBA announced the result of Comprehensive Assessment (CA). As of the balance sheet snapshot date of 31 December 2013, 25 banks failed the CA, with aggregate capital shortfalls of €24.6bn. • The end of the CA and recent ECB easing measures may modestly boost financial conditions in coming months, but their effect may be limited in the face of falling business sentiment, high private debt levels and an uncertain economic outlook. • The small amount of capital needs also suggests that lack of bank capital is not the major constraint for growth, highlighting that other policy measures are still needed to boost demand, notably ECB QE. Technical Analysis: • In the short term, EUR/USD may remain range-trading as RSI stays at neutral level. However, the pair upside may be restrained by 1.2800-1.2910 and may resume downtrend to 1.2501 upon consolidation. NOTE: The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.75 exchange rate for reference, and 1,000 yen per unit for JPY/HKD. © 2014 Citibank Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited 2 Please note and carefully read the Important Disclosure on the last page Daily FX & Market Commentary EUR/GBP may test lower to 0.7767: 0.8066 (Sep top) Recap: • EUR/GBP stayed flat yesterday despite the weaker-than-expected German Ifo survey. EUR/GBP Outlook: • The weak German Ifo survey may fuel concerns that the slowdown in German economic growth may drag down the EU economy. • The ECB will likely add more QE measures in late 2014 or early 2015 to support the economy, which may pressure the EUR. • GBP may outperform as the strong U.K. economy may raise expectation of early rate hike by the BoE. 0.7767 (Sep low) Source: Bloomberg L.P., data as of Oct 27, 2014 Technical Analysis: • EUR/GBP has fallen sharply after failure to penetrate resistance at 0.8066. As the RSI is falling from the overbought region, the pair may test lower to Sep low at 0.7767, with resistance at 0.8066. Data to be released for the next 24 hours: • No important economic data will be released. USD/JPY may consolidate before rising to 110.09: 110.09 (Oct 1 top) 108.38 (yesterday’s top) 106.55 (55MA) Source: Bloomberg L.P., data as of Oct 27, 2014 Recap: • USD/JPY dropped on dollar’s weakness due to the weak U.S. service and composite PMI. JPY Outlook: • A survey found support for Abe’s government had fallen from 62% to 53% after the resignation of two highprofile cabinet ministers, adding more pressure on PM Abe as he struggles to turn around the Japanese economy. • As PM Abe will likely raise the sale tax again in Oct 2015, the political pressure may prompt the BoJ to expand its monetary policy in Jan 2015, which may pressure the JPY. Technical Analysis: • As the RSI is trading around the middle range, the pair may consolidate initially but 55MA at 106.55 may contain the downside and the pair may rise again to 108.38 and then 110.09. Data to be released for the next 24 hours: • No important economic data will be released. NOTE: The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.75 exchange rate for reference, and 1,000 yen per unit for JPY/HKD. © 2014 Citibank Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited 3 Daily FX & Market Commentary Important Economic Data (Oct 27, 2014 – Oct 31, 2014) Time Importance Event Period Actual Survey Prior Monday 10/27/2014 17:00 GE !!! IFO Business Climate Oct 103.2 104.5 104.7 10/27/2014 22:00 US ! Pending Home Sales YoY Sep 3.00% 2.20% -4.10% 10/28/2014 20:30 US !! Durable Goods Orders Sep -- 0.30% -18.20% 10/28/2014 22:00 US ! Consumer Confidence Index Oct -- 87 86 10/29/2014 17:30 UK ! Mortgage Approvals Sep -- -- 64.2K 10/30/2014 02:00 US !!! FOMC Rate Decision Oct -- 0.25% 0.25% 10/30/2014 04:00 NZ !!! RBNZ Official Cash Rate Oct -- 3.50% 3.50% Tuesday Wednesday Thursday 10/30/2014 08:00 AU ! HIA New Home Sales MoM Sep -- -- 3.30% 10/30/2014 20:30 US !! Initial Jobless Claims Oct -- -- -- 10/30/2014 20:30 US !!! GDP Annualized QoQ 3Q -- 2.90% 4.60% Friday Bank of Japan Monetary Policy Statement Building Permits MoM Oct -- -- -- Sep -- -- 0.00% 10/31/2014 JN !!! 10/31/2014 05:45 NZ ! 10/31/2014 07:30 JN !! Jobless Rate Sep -- 3.60% 3.50% 10/31/2014 07:30 JN !! Natl CPI Ex Fresh Food YoY Sep -- 2.90% 3.10% 10/31/2014 08:05 UK ! GfK Consumer Confidence Oct -- -- -1 10/31/2014 18:00 EC ! Unemployment Rate Sep -- -- 11.50% 10/31/2014 18:00 EC !!! CPI Estimate YoY Oct -- -- -- 10/31/2014 20:30 CA !! GDP YoY Aug -- -- 2.50% 10/31/2014 20:30 US !! Personal Income Sep -- 0.30% 0.30% 10/31/2014 20:30 US !! Personal Spending Sep -- 0.10% 0.50% 10/31/2014 21:55 US !! Univ. of Michigan Confidence Oct -- 86.2 86.4 For any enquiries, please call (852) 2860-0333. Source: Source: Bloomberg L.P. (K = Thousand, M = Million, B = Billion) This document is based on information provided by Citigroup Investment Research, Citigroup Global Markets, Citigroup Global Wealth Management and Citigroup Alternative Investments. It is provided for your information only. It is not intended as an offer or solicitation for the purchase or sale of any security. Information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the information, consider its appropriateness, having regard to their objectives, financial situation and needs. Any decision to purchase securities mentioned herein should be made based on a review of your particular circumstances with your financial adviser. Investments referred to in this document are not recommendations of Citibank (Hong Kong) Limited (“Citibank”) or its affiliates. Although information has been obtained from and is based upon sources that Citibank believes to be reliable, Citi analysts do not guarantee its accuracy and it may be incomplete and condensed. All opinions, projections and estimates constitute the judgment of the author as of the date of publication and are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Past performance is no guarantee of future results. The document is not to be construed as a solicitation or recommendation of investment advice. Subject to the nature and contents of the document, the investments described herein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested. Certain investments contained in the document may have tax implications for private customers whereby levels and basis of taxation may be subject to change. Citibank does not provide tax advice and investors should seek advice from a tax adviser. Investment products: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Citi Foreign Exchange: Forecasts are a joint venture between Citi’s foreign exchange, global macro and technical strategy groups and our developed and emerging markets economists. Under normal circumstances, we expect to present Forecasts on a monthly schedule although we may offer intra month updates if circumstances dictate. Technical Trend: All views, opinions and estimates derived from CitiFX Technicals (i) may change without notice and (ii) may differ from those views;, opinions and estimates held or expressed by Citi or other Citi personnel, including Citi Foreign Exchange: Forecast. Should CitiFX Technicals not cover any major currency pairs, the indication of short-term technical "bullish", "bearish", or "neutral" trends will be based on the result of analysis with various widely known short-term technical analysis tools, namely RSI, MACD, fibonacci, stochastics, bollinger bands, and simple moving averages. 4