Economic Hardship vs. Policy Deluge

Defying the deepest global post-war recession, risk assets have continued to climb the wall of worries.



  • Defying the deepest global post-war recession, risk assets have continued to climb the wall of worries.
  • Flattening new cases in the advanced economies and the continued policy deluge will help to keep sentiment underpinned.
  • The air is getting thin, though, with US equity markets back to autumn 2019 levels. Key risks are a second wave of infections and the fast deterioration in US/China relations.
  • We stick to a pro-risk tilt concentrated in the higher quality buckets of risk assets, even as cyclical assets are showing signs of life. Keep a small long duration bias given the ‘swoosh’ recovery, disinflation and continued central bank activism.

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Market Perspectives 06/2020


US: Fiscal stimulus to boost GDP growth to 5.5% in 2021
The thin majority in the Senate will allow the incoming administration to deliver quickly a sizeable fiscal stimulus. We expect a package worth around US$ 800bn (on top of the US$ 900bn already agreed on in December), centred on the strengthening of direct income support to households, extended unemployment benefit and aid to local governments.
Last minute Brexit deal merely avoids the worst
A last-minute deal avoids falling back to WTO rules: After intense and painful negotiations, the UK and the EU finally agreed on Christmas eve on a Trade and Cooperation agreement. This prevented both sides to fallback to WTO rules.
2021 will see a ‘repair’ of the deep Covid-19 damages, with the economy set to rebound strongly as society normalises into summer. But there is much to despair about. Potential growth will be lower out of this crisis. Employment will recover more slowly and Covid has fanned inequalities. Investors can also lament about the fall of future investment returns.