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Citi Wealth Insights

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The Shift to Quality Assets

Cases of the delta variant of COVID-19 are rising just after we have reached “peak growth” in the global economy. Neither of these major issues are crises, but both suggest that important shifts in portfolios are necessary as we enter a mid-cycle period of somewhat slower, but sustainable growth. Consistent with this view, Citi analysts are making a major “Quality Shift” as we move past the last 12 months that favored COVID-19 recovery and mean reversion equity trades.
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CitiFX weekly house views and strategy - July 26, 2021

Weekly FX house views and strategy - for the week commencing July 26, 2021
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US, euro area and UK PMIs all point to slower activity/ stronger inflationary pressures due to supply constraints

USD: US July PMIs - supply chains stretched as PMI’s remain in expansionary territory – the preliminary US July services PMI business activity index comes in weaker than expected at 59.8 vs consensus for 64.5 and lower than June’s reading at 64.6.
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ECB meeting - a slight adjustment to rates guidance

EUR: The ECB overnight, makes no changes to rates, PEPP, APP or liquidity policy as expected but guidance is updated to reflect the new definition of price stability - “until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target”.
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Australia - weak retail trade tip of the iceberg; RBA set to double-down on dovish policy messaging

AUD: Australia’s preliminary retail trade for June declines -1.8%, much weaker than consensus and Citi analysts’ forecast of -0.7%.
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The Delta variant and outlook for USD

USD: The broad-based USD Index (DXY) holds after yields collapse and inflation surge - from a longer-term perspective, USD remains highly valued.
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