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.

Citi

President Trump’s failure to announce radically hawkish measures on China on Friday, brewing protests in the US and another round of constructive China PMIs has seen risk better bid ex-US. US equities lag Asia peers and we see the USD weaker across the board.

AUD is the stark outperformer in Asia as iron ore prices help away from positive risk sentiment. Elsewhere in the complex, EURUSD has continued to hold above 1.11 at 1.1135 at the time of writing – we could see significantly more upside in the short term now we are firmly above the 200d MA.

GBP has traded higher too with fiscal snippets over the weekend providing a tailwind, but we flag that the in principle final round of UK-EU talks are due to kick off today, which could see headline noise and no-deal risk pickup throughout the week.

Over in EM, KRW leads the pack as a proxy for a respite in US-China tensions. A surprise May trade surplus is also helping at the margin. Into today, out traders flag that we could get much awaited details of the 3rd supplementary budget (time unknown). Elsewhere in Asia FX, THB continues its run of strength despite BoT expressing concerns overnight about the recent run in FX. INR has also shrugged off India/China border tensions as well as a mixed Q1 GDP print on Friday. More below in the EM section.

GBP

Despite the fact that Brexit concerns are set to resurface this week as we head into the final round of EU-UK negotiations, GBPUSD is posting a strong showing, trading up to 1.2377 at the time of writing (+0.3% on the day). Weekend reports from FT could be providing a tailwind.

–    FT reports that Chancellor Sunak could introduce another round of fiscal stimulus in July where proposals could be announced to pump money into training schemes and infrastructure projects, as well as providing help for technology companies, according to government insiders.

–    We are unclear on the size of stimulus so far.

  • Back to Brexit though, our base case remains for no transition phase extension from this week’s talks, thus increasing the likelihood of a no-deal Brexit at the end of the year. CitiFX Strategy’s Adam Pickett believes the UK’s recent announcementof a post-Brexit tariff regime strengthened the likelihood of this outcome, nor are these tariff cuts bullish.

AUD

Leads the G10 pack in the Asia session. Broad based optimism across Asia assets, aided by China PMI tailwinds has seen AUDUSD breach 0.67 to trade at 0.6730 at the time of writing. In terms of reasons for outperformance away from positive risk sentiment, iron ore prices rallying as well as comments by Treasurer Frydenberg on boosting construction activity could be helping

Bigger picture, the moves in AUD play into our structurally bullish view on the currency and seem to be reflecting recent optimism by Governor Lowe who last week said that there were upside risks to growth, which the market has read as the economy placing somewhere in between the bank’s baseline and optimistic V shaped recovery scenarios.

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