Markets are caught between near-term pessimism and a brighter outlook further ahead. In the short run, economies face further lockdowns as vaccine production hits bottlenecks, rollouts hit stumbling blocks and mutations raise concerns over vaccine efficacy.
While such developments would affect economic activity, vaccinations are progressing and government support measures remain in place, allowing for an optimistic longer-term view.
In the US, there are encouraging calls to “act big.” Even if the proposed USD 1.9 trillion package is watered down, the economy can expect a remarkable sum of government stimulus. This will leave the US ahead of Europe, in terms of both fiscal support and the scope for a post-pandemic recovery.
While expectations of a US jumpstart might push Treasury yields higher, we believe it will take considerable economic progress this time before the Federal Reserve decides to raise interest rates.
We are positive on risky assets and given the current state of macroeconomic and political risk, we would add to positions on any weakness. We are long USD versus the euro since we expect the US to outperform the eurozone economically. We are short eurozone large-cap equity.
For more on our asset allocation views and our positioning, watch the video and read the latest report
