US President Biden proposed a third, much larger economic support package of US$1.9 trillion, which if passed in the state presented, adds the capacity to address immediate needs with enough aid to address a longer-lasting crisis if needed.

It could extend unemployment benefits, provide US$370 billion in funding assistance for state, local and territorial governments and public transit systems, provide US$170 billion to open and schools open and numerous other subsidies for low income families.

More and better vaccines

• After approvals of vaccines from Pfizer, Moderna and several from China that could find use in emerging markets, regulatory approvals of vaccines from Johnson & Johnson (J&J) and AstraZeneca in the US and Europe are pending.
• These appear positioned to succeed in the developing world given their less stringent storage requirements. J&J’s vaccine approach is a single dose. If effective, this may accelerate the speed of positive impact on restraining the virus and known variants.
• In light of the impressive earlier clinical data, Citi analysts expect J&J’s Phase 3 COVID-19 vaccine trial to illustrate safe and effective results. This could be another catalyst for global recovery as it could add another 1 billion doses in 2021.

Implications for portfolios

• There has been a remarkable recovery in some COVID-19 impacted assets and much less movement in others. For example, US small cap equities (up 28% since end 2019 to mid Jan 2021) and Latin America stocks (-14% since end 2019 to mid Jan 2021).
• Defensive, interest-rate sensitive assets have held their value during the past quarter despite rising long-term US rates. Chinese shares have outpaced their Southeast Asian counterparts by 40% since the start of 2020. In short, Citi analysts see momentum having carried some trades beyond near-term expectations.
• Separately, Citi analysts have previously expected a peak in the USD that is expected to decline. However, such declines rarely take place without interruption. The decline in the dollar is now a consensus trade that is at risk.
• Given these equity market divergences and strong consensus short positioning in the USD, Citi analysts believe there may be counter-trend rebounds in the US exchange rate. This can have negative repercussions for some of the best-valued long-term investments such as Emerging Market equities, post-Brexit UK equities, and global dividend payers including Financials. Nevertheless, Citi analysts view such pullbacks as potential opportunities.