Citi Wealth Insights

USD: A bipartisan fiscal stimulus deal looking more likely in US - Citi analysts’ base case for a ~$1trln fiscal package agreed ahead of December 11th is looking increasingly likely with House Speaker Pelosi and Senate Minority Leader Schumer overnight indicating Democrats would accept the ~$900bln stimulus proposal as a basis for negotiation. Citi analysts though expect this deal, if agreed, to be the last major tranche of COVID-related fiscal stimulus.

USD: Risk positive - Further vaccine developments – the European Medical Agency initiates the rolling approval process for a 4th vaccine overnight whose phase 3 clinical trials could be completed in March or April 2021.

USD: Fed Chair Powell allaying fears concerning the rift between the US Treasury and Fed - by assuring markets that the Fed has adequate recourse to emergency lending facilities under the non-CARES Act via the Exchange Stabilization Fund even as it returns the unused portion of funds allocated to its lending programs backstopped by the CARES Act (USD465bn) at year end.

USD: 2 announcements capture FX market attention overnight, sparking initial selling in USD, these being –

Second wave infections are still rising in several European countries. However fatalities are not rising at the same pace as in wave one, partly because of progress with treatments and also more hospital capacity. Recent vaccine news from pharmaceutical companies are also positive-looking towards the second half of 2021. Lockdowns are likely to be for shorter periods than 2Q and measures are softer.

CNH: PBoC, in its MPR on Friday, describes the monetary policy stance as “more flexible and appropriate, precisely targeted” but also hints it may be time to exit from the pandemic-era monetary policy.