Citi final estimate…The final estimate of month-end FX hedge rebalancing

From the FXWW Chatroom: Flows predicts small USD selling against all other G10 currencies today. The signal remains unchanged since the preliminary update on 24th April.
·       Equities have continued to gain over the past week with all but UK, Norway and Canada ending the month with positive returns. Fixed income markets have also shown resilience with all but Norway ending the month with small gains.
·       In the US we have seen upward momentum in MSCI US Index into month end flipping the returns from negative to +1.16%. Added to the steady gains from US bonds, our model suggests that foreign investors in US assets would have to sell USD to align their hedges with the increased asset values.
·       We expect this flow to be larger than the need for USD buying by US investors in foreign assets as the average gains in equities and bonds ex-US has been smaller than their US counterparts.
·       Overall the signals are relatively weak this month with no signal exceeding the 0.5 historic standard deviations.
·       There are no major data releases or speeches scheduled come out around London afternoon. US Chicago PMI and U. of Michigan sentiment will fall closest to the fix.

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