CITI…Month-End FX Hedge Rebalancing: May 2017 Preliminary Estimate

From the FXWW Chatroom: The preliminary month-end hedge rebalancing estimate sends a weaker than average signal to sell USD and GBP at the month-end fix next Wednesday, 31 May.
·       Both US bonds and equities have increased in value month-to-date, by 0.23% and 0.78% respectively, leaving foreign investors in US assets under-hedged relative to their benchmarks. However, because the asset price changes have been relatively small, the net global USD selling need this month measures just around 0.15 historical standard deviations.
·       GBP is an exception to this month’s weak USD sell signal, as the model also points to net GBP selling needs on the back of strong performance of UK equities.
·       Although Norwegian equities have also done well this month, the estimated USD selling needs of local investors dominate foreigners’ likely selling of NOK.
·       Markets will probably be paying attention to Riksbank and Fed comments as well as Canadian GDP and US Chicago PMI and pending home sales as potential volatility drivers ahead of the month-end fix.

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