The rebound in global stocks now leaves markets pricing an outcome to the pandemic between our central and upside scenarios. In both instances, UBS Global Wealth Management sees the easing of lockdowns, which are already underway in some countries, continuing in the coming weeks. The difference is that, in our central scenario, restrictions may need to be intermittently reimposed for the remainder of 2020, and we only see a sustainable return to economic normality by the end of December. In our upside scenario, a combination of digital tracking, possible drug treatments, and the absence of a significant second wave in virus cases, means that lockdowns are lifted by the end of June and do not need to be reimposed.
In recent days, markets have been responding to encouraging signs that the current steps toward lifting lockdowns may represent a sustained return to normality, and that the subsequent recovery could be well supported by policy efforts, and to the relative value offered by risky assets like equities if a return to normality can be sustained.
- We continue to see a steady flow of news that suggests major nations may achieve a sustained return to normality. France’s Prime Minister Edouard Philippe provided more details on Tuesday of the nation’s plans to lift the lockdown from 11 May, including using digital innovations to curb future waves of the virus. Drugs such as remdesivir have seen mixed trial data but present a potential means of managing a future spike in infections without leading to a renewed lockdown.
- There are also promising signs that government support packages are reaching their target and helping limit the sharp rise in joblessness and bankruptcy. Around 30 million workers in Europe’s largest five economies are now on government-backed furlough schemes, increasing the chances that they will return to work swiftly after lockdowns end.
- The European Central Bank’s bank lending survey revealed on Tuesday a strong takeup by companies of bridge loans, suggesting that liquidity is being made available to avert bankruptcies. Meanwhile, in the US, an initial small business bailout fund of $349bn ran dry on 16 April, and had to be relaunched at the start of this week with an additional $310bn, another sign that emergency funds are finding their way to businesses in need.
- Major central banks have pushed the boundaries of what they are prepared to do to counter the coronavirus pandemic, in terms of both the scale and the scope of their programmes.
“In recent days, markets have been responding to encouraging signs that the current steps toward lifting lockdowns may represent a sustained return to normality, and that the subsequent recovery could be well supported by policy efforts, and to the relative value offered by risky assets like equities if a return to normality can be sustained,” says Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.