Issue date: 2020-09-30
Activity has started to normalize around the globe, albeit with renewed localized lockdowns to contain virus clusters. Market volatility is returning after months of steady advances in risk assets. Valuations have risen, and we could see greater volatility in coming months as a result, especially as the U.S. election closes in. A contributing factor: Negotiations over the size and makeup of a new U.S. fiscal stimulus package have stalled. In addition, the pandemic is still spreading in many countries, and U.S.-China tensions have escalated.
What’s the challenge?
The public health and ensuing economic crises are exacerbating entrenched forms of inequality across income levels, ethnicity and countries. Many emerging markets (EMs) are facing health, policy and deglobalisation challenges. The pandemic has exposed vulnerabilities of global supply chains and added impetus to geopolitical fragmentation. It has led to a policy revolution that blurs the boundaries between fiscal and monetary action – which could address some of the rising inequalities. And it has put a premium on sustainability, corporate responsibility and resilience of companies, sectors and countries. The world has changed, leading us to a completely new macro framework and major view changes. Our revamped 2020 investment themes reflect this, and now include strategic, or long-term, implications.
Theme 1: Activity restart
Theme 2: Policy revolution
Filling in the gap
Estimated virus hit to GDP vs. offsetting policy measures, 2020
* The euro area is represented by averages of Germany, France, Italy and Spain.
Sources: BlackRock Investment Institute, with data from the Federal Reserve, ECB, BOJ, BOE and Haver Analytics, June 2020. Notes: The chart shows the magnitude of the negative shock (orange) and the associated positive policy response (yellow) as percentages of GDP. We use estimated 2020 targets for the U.S. and euro area central bank purchases and lending programs. The euro area includes the ECB’s Targeted Longer-Term Refinancing Operations. The UK includes central bank support for the Term Funding Scheme.
Theme 3: Real resilience
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