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Vaccine hopes allow gains in risk sentiment to extend gains

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Vaccine hopes allow gains in risk sentiment to extend gains                                       

  • USD: The positives overnight – Another vaccine boost for markets? Re-emergence of new vaccine hopes trumps all else overnight that leaves risk assets with a slightly stronger finish and USD mildly weaker with the broad based USD Index (DXY) closing the overnight session at 96.15 from 96.25 the previous day after dropping to as low of 95.78 earlier in the NY session. Stat reports late Tuesday that the Moderna’s Covid-19 vaccine candidate has led patients to produce antibodies that can neutralize the novel coronavirus, according to the first published data from an early-stage trial of the experimental shot.  CDC Chief Fauci  notes - “The data really looks quite good…..there have been no serious adverse events. The hallmark of a vaccine is one that can actually mimic natural infection and induce the kind of response that you would get with natural infection. And it looks like, at least in this limited, small number of individuals, that is exactly what’s happening. There have been no serious adverse events”. That said, Dr. Fauci still sees any significant vaccine developments by early next year (at the earliest).              
  • GBP: UK’s ITV also reports likely positive news on the University of Oxford/AstraZeneca Covid-19 vaccine. The vaccine is seen generating the kind of antibody and T-cell (killer cell) response that the researchers would hope to see in the preliminary data. The results may be made available on medical journal The Lancet. COMMENT: Vaccines/treatment news seems to be trumping all else for now as markets once again shrug off news about new Covid-19 infections rising in over 30 states across the US and comments from President Trump on China. At the same time however, it  seems markets may still be underestimating (1) the vaccine development timeline and (2) difficulty of making an effective vaccine on a mass scale.                 
  • EUR: More positives on EU Recovery Fund and French fiscal stimulus also helps drive risk sentiment - Chances of successful EU summit rising? – Handelsblatt reports the European Parliament negotiators see improving chances of a EC budget and EU Recovery Fund deal at the 17/18 July EU summit. Of the “frugal 4”, Austria, Denmark and Sweden appear likely to cave in, but Citi analysts point to the Netherlands as a risk of holding out due to the domestic political situation there. However, German Chancellor Merkel says she will bring “a reserve of compromise” to the summit, while the Spanish PM demands a solution “in July”. Adding to the positives, French President Macron promises a local recovery plan worth at least EUR100bn (4.1% of 2018 GDP) to be unveiled at the end of August.          

 

Risk negatives largely ignored for now – rising new Covid-19 cases in US and US tensions with China

  • USD: US Coronavirus update: Lockdown limbo - In the US, more than half the states are seeing positivity test rates rise as the Fourth of July effect filters and there are new testing drives in Texas/Louisiana/Florida. Meanwhile, California reintroduces restrictive measures and Texas could be next to follow, depending on hospitalization trends. Local lockdown measures are also being implemented globally, increasing the risk of growth downgrades for INR, ZAR, COP, HKD. Australia is also starting to see  more measures as the situation in Victoria state fails to improve.
  • CNY: US – China tensions - President Trump reiterates that there is “more action coming” on China. On tariffs, he says “we can impose massive tariffs on China if we want” and that he currently has no plans to speak with President Xi. However, Trump qualifies his remarks by indicating he is ruling out additional sanctions on top officials for now, according to people familiar with the matter. However, given US actions already taken, China vows to take countermeasures and announce its own sanction on US officials and entities over the HK law.

 

Data releases/ events overnight                                         

  • USD: US Manufacturing rebound stronger and more broad-based - US June industrial production rises 5.4%MoM, above Citi at 4.1% and consensus at 4.3%, leaving the headline series down 10.8%YoY. Manufacturing production advances 7.4% and autos rise 105%. Citi analysts see further upside for manufacturing in the auto sector while other components of manufacturing production also have room to rise further, consistent with data such as weekly steel production.           
  • GBP: UK – surprise uptick in core CPI - Headline CPI (targeted by the BoE), rises slightly to 0.6% YY in June (consensus 0.5%, Citi 0.4%) compared to 0.5% YY in May and 1.7% on average over Q1-20. The notable surprise is the uptick in core inflation from 1.2% in May to 1.4% in June (Consensus 1.2%, Citi 1.1%). However, several UK firms seem to have confirmed price reductions associated with the cut to VAT in the hospitality and leisure sectors. Citi analysts expect this to weigh on headline CPI inflation by around 0.4pp-0.5pp in 2H with the largest effects to be seen in Q4-2020.    
  • JPY: BoJ meeting a non-event - As expected, BoJ leaves policy unchanged. In its updated outlook, the Bank marginally lowers its growth forecast for Japan for FY2020 to between -4.5 - -5.7% (central -4.7%) from -3.0 -  -5.0% (central -4.0%) in the April report, while expressing more optimism for FY2021 and FY2020. The inflation outlook though is virtually unchanged, with a narrower forecast range. Bottom Line - there seems to be no implication from the meeting for the government’s fiscal stimulus program and the central bank’s strengthened bond purchases.    
  • CAD: BoC board meeting - BoC leaves policy rates at the effective-lower-bound of 0.25% and recommits to purchases of at-least C$5 billion per week of sovereign Canada bonds. For Governor Macklem's first full-meeting, the tone of the statement is slightly dovish, with asset purchases repackaged as QE. BoC also releases its Monetary Policy Report (MPR) in which the central growth scenario is for a - a 43% annualized decline in Q2 GDP and a +31% bounce back in Q3.    

 

This is is an extract from the Daily Currency Update, dated July 16, 2020. Please approach a Citigold Relationship Manager if you would like more information.

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(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 25 million or more

(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 25 million; or

(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

GLOBAL CONSUMER BANK (ASIA PACIFIC AND EMEA):

“Citi analysts” refer to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”), Citi Global Wealth Investments (“CGWI”) and voting members of the Citi Global Investment Committee.
Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document.

The information in this document has been obtained from reports issued by CGMI and CGWI. Such information is based on sources CGMI and CGWI believe to be reliable. CGMI and CGWI, however, do not guarantee its accuracy and it may
be incomplete or condensed. All opinions and estimates constitute CGMI and CGWI's judgment as of the date of the report and are subject to change without notice. This document is for general information purposes only and is not intended
as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware
of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance, prices can go up or down. Investment products are not available to US persons. Investors should be aware
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Citi Research (CR) is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

For more information, please refer to https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.

MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs,
and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong
and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

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the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom
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Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making
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themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from Its use.

CSL does not provide discretionary portfolio management services.

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