Please note and carefully read the Important Disclosure on the last page Daily FX & Market Commentary Nov 19, 2014 Published from Tuesday to Friday Market Recap • European stocks rose: Stoxx 600 rose 0.6% as the ZEW survey shows economic sentiment in Germany rose for the 1st time in almost a year, beating markets’ expectation. • Hong Kong/ China stocks fell: HSI fell 1.1% and CSI 300 Index fell 1% as trading volumes turned lower. Northbound SH-HK Stock quota balance was Rmb8.16bn, accounting for 63% of the daily limit while Southbound also saw an end-day balance of Rmb9.7bn or 92% of the daily limit. • Japanese stocks gained : TOPIX Index rose 2.1% to 1,394 and Nikkei 225 rose 2.2%% to 17,344. Japanese Prime Minister said it would call an early election and delay consumption sales tax hike. Table: Daily Market Movement (Nov 18, 2014) Equity Market Indices U.S. Close Change % Commodity Futures Energy & Metals Close % S&P 500 Index Dow Jones Industrial Average NASDAQ Composite Index Europe 2,051.80 17,687.82 4,702.44 +10.5 +40.1 +31.4 +0.5% WTI Crude Oil (USD/bbl) +0.2% Brent Crude (USD/bbl) +0.7% Natural Gas (USD/MMBtu) COMEX Gold (USD/oz) 74.61 78.47 4.24 1,197.1 -1.4% -1.1% -2.2% +1.1% Stoxx Europe 600 Index DAX Index Japan TOPIX Index Nikkei 225 Stock Average China / Hong Kong Hang Seng Index Hang Seng China Enterprises 339.30 9,456.53 +2.1 +150.2 6,704.0 0.0% 1,394.88 17,344.06 +28.8 +370.3 23,529.17 10,426.11 -267.9 -128.2 +0.6% LME Copper (USD/MT) +1.6% Bond Yields & CNY U.S. Treasuries - Yields +2.1% 3-Month - Yield (%) +2.2% 5-Year - Yield (%) 10-Year - Yield (%) -1.1% 30-Year - Yield (%) -1.2% USD/CNY 2,456.37 -17.6 Shanghai SE Composite -0.7% China Renminbi Spot Close Change +0.01 0.01 -0.02 1.61 -0.02 2.32 -0.02 3.04 Close % 6.12 -0.1% Data Source: Bloomberg L.P. Hot News: Japan may escape from deflation after delay in tax hike Chart: Dollar/Yen rate and TOPIX trends during the “Abenomics market”: Simultaneous yen weakening and share price gains Source: Citi Research, as of Nov 19, 2014 Prime Minister Shinzo Abe deferred tax hike and dissolved Lower House • Prime Minister Shinzo Abe announced to defer the implementation of a second consumption tax hike initially slated for October 2015 to April 2017. • He has also announced that the Lower House would be dissolved on Friday (November 21), and called an early election in a bid to extend his term and salvage his Abenomics policies after the country fell into recession. Citi analysts’ view: • By postponing the consumption tax hike, the prime minister has increased the likelihood of an escape from deflation and increase inflation rate expectations. • From past experience, inflationary expectations may lead to yen depreciation which may send shares higher (Chart). • Citi analysts anticipate the TOPIX may break above 1,500 in FY3/15 and also expect strong performances from financials, which readily benefit from rising asset prices. • On Asia, the competitiveness issues from yen weakness may be most acute in Korea than other Asian countries because of the net export similarity, especially in “road vehicles” and “electronics machinery and equipment” • Citi analysts anticipate monetary easing pressures, partly influenced by Bank of Japan action, is highest in Korea, then China and Thailand, followed by Singapore and possibly Taiwan. For example, Citi analysts delayed Taiwan’s rate hike timetable. © 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 87.93 1.2536 116.86 1.5633 1.1296 0.8720 0.7923 0.9583 1.2979 1196.99 87.98 1.2545 117.05 1.5679 1.1324 0.8747 0.7974 0.9654 1.2993 1204.75 87.18 1.2444 116.34 1.5630 1.1260 0.8682 0.7909 0.9575 1.2958 1183.53 Short Term Comment Bullish Bearish Bullish Neutral Bullish Neutral Neutral Neutral Neutral Neutral Support Resistance 84.75 1.2214 115.84 1.5606 1.1180 0.8545 0.7661 0.9156 1.2716 $1,032 88.70 1.2703 117.95 1.6003 1.1446 0.8899 0.8052 0.9839 1.3000 $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) • • • • GBP pared loss: U.K. CPI growth rate (YoY) rose from 1.2% to 1.3% in Oct, topped market estimates. EUR rebounded: German ZEW Index jumped from -3.6 to 11.5 in Nov, topped market expectations. JPY fell: Japan PM Abe announced to delay consumption tax hike and dissolve the Lower House this Friday. CAD weakened: WTI Oil price fell 1.4% to close at $74.61, which suppressed the CAD yesterday. Daily FX Focus USD/CAD may rise toward 1.1467: 1.1467 (Nov top) 1.1180 (55MA) CAD Outlook: • Since petroleum product is Canada’s major export commodity, the plunge in oil price may dampen Canada’s export income and suppress the CAD in the short term. • The U.S. Senate has rejected the Keystone Pipeline Legislation. It was legislation to approve construction of TransCanada’s Keystone XL oil pipeline. The decision may have negative impact on Canada’s export and the CAD. • Reflecting the recent slide in energy prices, CPI inflation may fall below the BoC’s 2% target and not return until late next year, suggesting a later date for resumption of BoC rate hikes. • CAD’s non-commercial net-short positions increased to 21846 contracts, reflecting accelerating funds outflow from the currency. Source: Bloomberg L.P., data as of Nov 19, 2014 Technical Analysis: • 1) RSI; Rise from neutral level; 2) Uptrend channel; 3) Stay above 55MA • Technical signals suggest that the upside momentum for USD/CAD is increasing. The pair may test higher to 1.1467. 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 USD/JPY may rise to 117.95: Recap: • JPY weakened as Japan PM Abe announced the second consumption tax hike will be deferred until Apr 2017 and dissolve the Lower House this Fri. 117.95-120 (Oct 2007 top & psychological level) 115.84 (10MA) Source: Bloomberg L.P., data as of Nov 19, 2014 Technical Analysis: • 1) RSI: Overbought region; 2) Stay above 10MA • Technical signals suggest USD/JPY may rise further to 117.95 and then 120 level, with near-term support at 115.84. JPY Outlook: • Currently, the LDP has 294 seats of a total 480 seats. We believe the absolute majority hurdle seems extremely low. • The victory in election may support the equity due to the acceleration of Abenomics and also be a driver of JPY depreciation. • Citi analysts expect the Japan government is now using fourth arrow of fiscal and monetary stimulus in combination. • If the policies look like getting inflation but no growth, even more downside pressure in JPY may be seen. AUD/NZD may trade inside 1.0919-1.1304: 1.1304 (Oct top) 1.0919 (Sep low) Source: Bloomberg L.P., data as of Nov 19, 2014 Technical Analysis: • 1) Recovery after holding above 1.0919 support; 2) RSI: Oversold region; 3) Stochastic oscillator: turning up from bottom • Technical signals show price may rebound after holding above 1.0919 and trade inside 1.0919-1.1304 range. Recap: • AUD/NZD rebounded as Fonterra's GlobalDairyTrade price index slipped 3.1% at the latest auction. AUD/NZD Outlook: • NZD may be pressured as the weakness in dairy price may reduce the export income in NZ. • The RBA released the minutes yesterday and it highlighted the risk posed by the Chinese property market and noted the carry-trade flows from the BoJ’s easing may hold AUD above fundamental value. • As the market do not get excited from the minutes, AUD will likely outperform NZD. 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 17, 2014 – Nov 21, 2014) Time Importance Event Period Actual Survey Prior NZ !! Retail Sales Ex Inflation QoQ -- 0.80% 1.20% 11/17/2014 07:50 JN !!! GDP Annualized SA QoQ 11/17/2014 21:30 CA ! Int'l Securities Transactions 3Q -- 2.20% -7.10% Sep -- -- 10.28B 11/17/2014 22:15 US ! Industrial Production MoM Oct -- 0.20% 1.00% 11/18/2014 08:30 AU !! RBA Minutes of Nov. Meeting 11/18/2014 17:30 UK !!! CPI YoY 11/18/2014 18:00 GE !! ZEW Survey Expectations Oct -- 1.20% 1.20% Nov -- 0.9 -3.6 Monday 11/17/2014 05:45 3Q Tuesday Nov Wednesday 11/19/2014 05:00 US ! Total Net TIC Flows Sep -- -- $74.5B 11/19/2014 07:30 AU ! Westpac Leading Index MoM Oct -- -- -0.10% 11/19/2014 17:00 EC !! ECB Current Account SA Sep -- -- 18.9B 11/19/2014 17:30 UK !! Bank of England Minutes Nov 11/19/2014 21:30 US !! Housing Starts MoM Oct -- 0.80% 6.30% 11/19/2014 21:30 US !! Building Permits MoM Oct -- 0.60% 1.50% Thursday -¥1070.1B ¥1111.6B 11/20/2014 07:50 JN !! Trade Balance Adjusted Oct -- 11/20/2014 09:45 CH !! HSBC China Manufacturing PMI Nov -- 11/20/2014 17:00 EC !! Markit Eurozone Manufacturing PMI Nov -- 50.9 50.6 11/20/2014 17:30 UK !! Retail Sales Ex Auto YoY Oct -- 3.90% 3.10% 11/20/2014 17:30 UK !! Retail Sales Incl. Auto YoY Oct -- 3.80% 2.70% 11/20/2014 21:30 US !!! CPI YoY Oct -- 1.60% 1.70% 11/20/2014 21:30 US !! Initial Jobless Claims Nov -- -- 290K 11/20/2014 23:00 US !! Existing Home Sales MoM Oct -- -0.40% 2.40% 50.3 50.4 Friday 11/21/2014 21:30 CA !! CPI YoY Oct -- 2.00% 2.00% 11/21/2014 21:30 CA !! CPI Core YoY Oct -- 2.20% 2.10% 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