Please note and carefully read the Important Disclosure on the last page Daily FX & Market Commentary Nov 13, 2014 Published from Tuesday to Friday Market Recap • U.S. stocks fell: The S&P’s 500 Index was little changed, losing 0.1%. • After market closed, Tencent (700) said 3Q net income rose 46% to 5.7billion yuan, less than market estimate.(Pls see page 3 for analysis) • The Hong Kong Monetary Authority announced that the CNY conversion limit for HK residents of RMB20,000 per day will be removed with effect from Nov 17, 2014. Table: Daily Market Movement (Nov 12, 2014) Equity Market Indices U.S. S&P 500 Index Dow Jones Industrial Average NASDAQ Composite Index Europe Close Change 2,038.25 17,612.20 4,675.14 -1.4 -2.7 +14.6 335.09 9,210.96 -3.8 -158.1 Japan TOPIX Index Nikkei 225 Stock Average 1,377.05 17,197.05 +1.8 +72.9 China / Hong Kong Hang Seng Index Hang Seng China Enterprises 23,938.18 10,729.76 +129.9 +77.7 2,494.48 +24.8 Stoxx Europe 600 Index DAX Index Shanghai SE Composite % Commodity Futures Energy & Metals -0.1% WTI Crude Oil (USD/bbl) 0.0% Brent Crude (USD/bbl) +0.3% Natural Gas (USD/MMBtu) COMEX Gold (USD/oz) -1.1% LME Copper (USD/MT) -1.7% Bond Yields & CNY U.S. Treasuries - Yields +0.1% 3-Month - Yield (%) +0.4% 5-Year - Yield (%) 10-Year - Yield (%) +0.5% 30-Year - Yield (%) +0.7% USD/CNY +1.0% China Renminbi Spot Close 77.18 80.38 4.19 1,159.1 % -1.0% -1.6% -1.5% -0.3% 6,692.0 0.0% Close Change 0.01 -0.01 1.65 +0.01 2.37 +0.01 +0.01 3.10 Close 6.13 % +0.0% Data Source: Bloomberg L.P. Hot News: HKMA announces removal of yuan conversion limit for HK residents Chart: USD/CNY – Daily Chart Source: Bloomberg L.P. as of Nov 13, 2014 CNY and HKD remained stable yesterday: • The Hong Kong Monetary Authority announced that the CNY conversion limit for Hong Kong residents of 20,000 yuan per day will no longer be applicable with effect from November 17, 2014. • HKMA announced this timely measure on Nov 12, ahead of the official start of the Shanghai-HK Stock Connect program on Nov 17. • Both USD/HKD and USD/CNY stayed flat at 7.7544 and 6.1263 respectively yesterday. Citi analysts’ view: • The policy intention is to facilitate sufficient RMB supply offshore to allow further RMB financial instruments to be offered and help pursue the RMB internationalization goal. • Note this latest move does not imply any change to China’s capital account control, as local residents will continue to be subjected to the maximum RMB80,000 daily remittance limit. • HK could see higher RMB deposit rates in the medium term. • The Stock Connect program provides a higher yielding investment option for the offshore RMB. This should help narrow the interest rate difference being offered onshore and offshore overtime. • However, in the near term, HK’s ‘idle’ RMB liquidity pool remains large (RMB deposits amounted to RMB944.5bn at end-Sep) and the maximum northbound stock purchases are capped at RMB13bn per day; therefore, Citi analysts believe RMB deposit rates offered in HK will only likely be raised gradually over the medium term. • Falling commodity prices and subdued domestic demand may mean the trade surplus may last well into the first half of 2015，which may support CNY. • USD/CNY may test lower at 6.10 in 0-3 months. The pair may reach 6.04 in 6-12 months. © 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 87.83 1.2438 115.49 1.5779 1.1319 0.8719 0.7879 0.9665 1.2904 1162.65 87.90 1.2498 116.01 1.5941 1.1359 0.8745 0.7906 0.9680 1.2936 1170.24 87.40 1.2419 114.89 1.5776 1.1281 0.8665 0.7799 0.9623 1.2883 1157.42 Short Term Comment Bullish Bearish Bullish Neutral Bullish Neutral Neutral Neutral Neutral Neutral Support Resistance 84.75 1.2223 110.66 1.5722 1.1238 0.8545 0.7661 0.9156 1.2716 $1,032 88.70 1.2578 117.95 1.6003 1.1505 0.8899 0.8052 0.9839 1.2977 $1,200 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) • EUR fell: Eurozone Industrial Production only rose 0.6% in Sep, trailed market expectation. • NZD rebounded: The RBNZ said it won’t relax mortgage lending restrictions for now as surging immigration and low borrowing costs could re-ignite the housing market. • GBP weakened: The BOE has lowered its GDP and CPI forecasts for the coming years in inflation report. Daily FX Focus GBP/USD may range trade between 1.5722-1.6003: 1.6003 (fibo 0.50) 1.5722 (fibo 0.618) Source: Bloomberg L.P., data as of Nov 13, 2014 GBP Outlook: • The MPC’s growth forecasts are marginally lower, with GDP growth of 2.9% in 2015 (3.1% previously) and sharply cut their near-term inflation forecasts, expecting that CPI inflation will be about 1.0% YoY on average in H1-2015. • The MPC continues to expect average earnings growth of 3¼% YoY in 2015. The MPC’s forecast implies that unit labour cost growth in 2015 and beyond may be roughly consistent with hitting the inflation target over time rather than producing a medium-term undershoot. • We broadly share the MPC’s view that the UK is set for solid economic growth with low inflation in 2015. Over time we suspect that the continued tightening in the labour market means that the MPC may need to hike more than markets price in. Technical Analysis: • Since RSI is trending up, GBP/USD downside may be limited and will likely range trade between 1.57221.6003 in the short term. 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/USD may fall further to 1.2223: 1.2578 (20MA) 1.2223 (200 month MA) EUR Outlook: • Eurozone Industrial Production only rose 0.6% in Sep, trailed market expectation, reflecting the deterioration of Eurozone economy. • Citi analysts anticipate the ECB to implement QE and mainly purchase government bonds in Jan 2015. This will likely be EUR-negative in the medium term. • For the 0-3 months, we expect the EUR to fall further to 1.23 and may drop toward 1.15 for the coming 6-12 months. Source: Bloomberg L.P., data as of Nov 13, 2014 Technical Analysis: • 1) RSI; Approaching oversold region; 2) Still within the downtrend channel • Technical signals reflect the EUR/USD may gradually fall toward 1.2223, with short-term resistance at 1.2578. Investment Market Update Mobile internet drives growth of E-commerce in China Chart: Number of mobile internet users and penetration, 2007-2013 Source: iResearch Tencent 3Q earning & Alibaba’s sales on Singles' Day • Tencent third-quarter net income rose 46% to 5.7billion yuan, less than the market expectation of Rmb6.1billion as finance costs and staff costs rose. • On the Singles' Day (on Nov 11), which is the world's biggest online retail sales day, Alibaba says it has pulled in 57.1 billion yuan (US$9.3bn) in sales, up 62% from last year. Citi analysts’ view: • According to China Internet Network Information Center (CNNIC), the number of mobile internet users grew from 118 million in 2008 to 500 million in 2013, penetrating 81% of the total internet users in China (Chart). • Citi analysts anticipate the transition from PC to mobile internet enables users to access more frequently and evolve new opportunities in Ecommerce in the future. • According to CNNIC, there were 302 million online shoppers in China in 2013, representing 49% of total internet users. • Citi analysts believe the lack of offline retail infrastructure and improvement in logistics for ecommerce companies pose opportunities for online shopping in lower tier cities. • Within the MSCI China Index, Citi analysts anticipate earnings-per-share (EPS) of the I.T. sector to grow 22% in 2015, higher than the 8% EPS growth for the index. Citi analysts are overweight in China I.T. stocks. 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 (Nov 10, 2014 – Nov 14, 2014) Time Importance Event Period Actual Survey Prior Monday 11/10/2014 09:30 CH !! CPI YoY Oct 1.60% 1.60% 1.60% 11/10/2014 21:15 CA ! Housing Starts Oct 183.6K 200.0K 197.4K -¥714.5 -¥782.5B -¥831.8B Tuesday 11/11/2014 07:50 JN !! Trade Balance BoP Basis Sep 11/11/2014 08:30 AU ! NAB Business Confidence Oct 4 -- 5 Nov 1.90% -- 0.90% Wednesday 11/12/2014 07:30 AU ! Westpac Consumer Conf SA MoM 11/12/2014 08:30 AU !! Wage Price Index YoY 3Q 2.60% 2.60% 2.60% 11/12/2014 17:30 UK !!! Jobless Claims Change Oct -20.4K -20.0K -18.4K 11/12/2014 17:30 UK !!! ILO Unemployment Rate 3Mths Sep 6.00% 5.90% 6.00% 11/12/2014 18:30 UK !!! Bank of England Inflation Report Nov Thursday 11/13/2014 08:00 NZ ! ANZ Consumer Confidence MoM Nov -- -- -3.40% 11/13/2014 08:01 UK !! RICS House Price Balance Oct -- 25% 30% 11/13/2014 13:30 CH !! Retail Sales YoY Oct -- 11.60% 11.60% 11/13/2014 13:30 CH !! Industrial Production YoY Oct -- 8.00% 8.00% 11/13/2014 21:30 US !! Initial Jobless Claims Nov -- -- 278K Friday 11/14/2014 03:00 US ! Monthly Budget Statement Oct -- -$111.7B -- 11/14/2014 18:00 EC !!! CPI YoY Oct -- 0.40% 0.40% 11/14/2014 18:00 EC !!! GDP SA YoY 3Q -- 0.60% 0.70% 11/14/2014 21:30 US !!! Retail Sales Advance MoM Oct -- 0.20% -0.30% 11/14/2014 21:30 US !!! Retail Sales Ex Auto MoM Oct -- 0.20% -0.20% 11/14/2014 22:55 US !! Univ. of Michigan Confidence Nov -- 87.5 86.9 For any enquiries, please call (852) 2860-0333. Source: Source: Bloomberg L.P. 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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