The Investment Bank Outlook 23-03-2020

<p>In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.</p>
<h2>Citi</h2>
<p>Risk-off reigns on the back of rocky, Phase 3 fiscal stimulus talks in the US and as COVID-19 continues to strike across the world, with weekend numbers clear evidence of the exponential growth phase. Global cases jumped by 73k over the weekend, with US cases doubling. We expect further and tighter lockdown measures, with INR coming into the fore on Friday and NZD going into nationwide isolation. The tragic death toll in Italy and Spain is particularly concerning, and something we flagged . China reported 39 additional coronavirus cases, with all of them from abroad, while across Asia we are seeing tentative signs of a resurging outbreak.</p>
<p>The weekend picture of bipartisanship Senate efforts working towards a USD1.6tn plan quickly fell apart into the Asia Open with House leadership signalling strong opposition. At the time of writing, eyes are on i) Treasury Secretary Mnuchin trying to play middle man ii) House Speaker Pelosi, who has been generally tight-lipped beyond guidance that the House will work on its own plan and iii) Senate Majority Lead McConnell, who threatens to hold another vote on the bill minutes into the US equity open if Democrats and Republicans don’t reach a conclusion.</p>
<ul>
<li><strong>USD’s</strong>negative newsflow paved the way for more USD strength, bond buying, and equity losses in early Asia.</li>
<li>The major issue was the Phase Three stimulus bill, as events unfolded as follows:</li>
<li>The Senate bill was thought to have bipartisan support early Sunday but dissent from House Speaker Pelosi caused all to unravel. Senate Majority Leader McConnell lost his procedural vote to move the bill forward and complicating matters, a Senator – who was physically present in weekend negotiations – was confirmed to have COVID-19. Some Senators are now practicing self-quarantine.</li>
<li>Politico sources confirmed that Treasury powers under this program were the main sticking points among Democrats. With this, Treasury Secretary Mnuchin was brought in for direct meetings with Senate Minority Leader Schumer.</li>
<li>All the while, Pelosi has said the House will write their own bill. Specifics of that have not been shared but our Cheatsheet above reviewed known areas of disagreements beyond the later discovered Treasury findings. Any official communication of a new Pelosi-Mnuchin discussion could be a welcome development. McConnell had warned that he would hold a vote at 9:45 EDT Monday unless Republicans and Democrats make a deal – but he has since walked back on this. The Senate will break until 12:00 EDT.</li>
</ul>
<h2>RBC Capital Markets</h2>
<p><strong>Week ahead:</strong> The flow of post‐COVID‐19 data starts to pick up this week, most notably in the form of the March flash PMI data in the Eurozone (see EUR). The same data are due in Japan and Australia, though are less closely watched. In the US and Canada, most data releases are second‐tier or relate to February, rendering them of little consequence. The main exception is the US jobless claims data for March 21, which our economists describe as being poised for an “off the charts” print, given what we have heard from many states now (reporting claims in excess of 100,000 each in many cases). They are penciling in a 1.0mn read, up from 281K in the previous week and compared to a trend of around 200K. But with social distancing accelerating as the week went on, it could be even higher.</p>
<p><strong>EUR:</strong> The flash composite PMI for March (Tuesday) is expected to fall 10pts to around 42, with similar falls across countries and industries. The PMI surveys are typically conducted in the second half of each month, with the data for the ‘flash’ survey typically collected in the week or so preceding the release of the results. For example, in February the data for the UK ‘flash’ release, which was published on the 21st of the month, was collected between the 12th and the 19th. For this month, therefore, that timetable would imply that the survey fieldwork would have been conducted between March 16 and 20, just as France and Spain were announcing lockdowns and the UK stepped up its crisis response. Even so, the ‘flash’ PMIs may not capture the full extent of the impact that measures to limit the virus are having. Italy is not included in the ‘flash’ survey, so for a look at what it going on there, we will have to wait until the final release early next month.</p>
<p><strong>GBP:</strong> The UK PMIs should be similarly weak (consensus 45.1 for the composite measure). This week also brings February CPI data, though they are largely irrelevant at this stage. The BoE is currently much more focused on dealing with the near‐term fallout from the coronavirus outbreak than on what inflation was a month ago.</p>
<p><strong>AUD:</strong> The RBA purchased it daily maximum AUD4bn of bonds. 3yr yields remain slightly above its 0.25% target (currently 0.27%).</p>
<p><strong>CAD:</strong> Today’s January wholesale trade sales report is the only data release of note scheduled for this week. Last week’s sharp rejection of the 2016 high at 1.4690 points to some signs of exhaustion after the 10% rally that has taken place in USD/CAD this month, with initial resistance now located at 1.4536 and 1.4600. A return below support at 1.4103 would add more weight to the exhaustion thesis, with secondary support at 1.4014.</p>
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