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Moving on – towards a post pandemic world

It has been another week of markets feeling on edge, without going anywhere. Markets seem to have caught a bit of worry about the passage of growth, oddly just as the wider populace gets more confident and the recent headwind of rising bond yields abated.

Perhaps we should attribute the bubbling up of political tensions as the cause of the recent market torpor, replacing expectations of a very fast and unprecedented recovery growth spurt with just a fast and substantial one. In any case, we ended last week with a slightly lessened sense of EU-UK conflict, with Boris Johnson putting in a creditable performance in discussions with European Union (EU) counterparts.
Meanwhile, in his first press conference, US President Biden delivered a calmer presence after some unexpectedly confrontational noises towards his Chinese and Russian opposites.

 

Europe is poised for improvement

Positive stories about Europe are thin on the ground at the moment – notwithstanding that core European equity markets have broadly outperformed their global peers, including the US, so far this year. With a sluggish vaccine rollout and a renewed rapid spread of infections across the continent, restrictions look set to remain in place for the foreseeable future. This will seriously hamper certain economic activity, at a time when a sharp recovery in the US looks all but certain for the rest of this year. The comparative fortunes either side of the Atlantic are understandably making investors more nervous about European assets, especially as there is some evidence that the absent buyer has typically been foreign. Some good news, then, is long overdue.

 

Geopolitics back on the radar as diplomacy runs aground

As we enter spring, the world thankfully looks a little brighter. The vaccine rollout is well underway in the UK and US, and is having palpable effects on the outlook for the second half of this year – despite disruptions on the continent and virus mutation scare stories. For investors, despite the caveats, there has also been a notable improvement in near-term economic expectations. Nowhere is this truer than the US, where easing conditions, an accommodative Fed and a blast of fiscal stimulus have set the stage for a fullspeed recovery. But this strength should fortunately filter out to the global economy and, even without the US spillover factor, there is a sense that for the rest of the world the harsh winter is also behind us.

 

Read the full commentary here

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