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I believe that any deal on post-Brexit trade would allow UK risk assets to outperform given reduced uncertainty, the prospect of a rapid recovery in the first half of 2021 and attractive valuations. However, the deal would not resolve all the issues facing the UK.

What a Brexit deal won’t do

Under the terms of the deal being discussed at the time of writing, EU-UK trade would be on much less favourable terms than currently. The deal will probably exempt trade in goods from tariffs, which is positive; but it will not prevent non-tariff barriers or provide a framework for services exports. While there may be some regulatory alignment, the deal could allow the UK to deviate in the future, which could trigger retaliatory moves and jeopardise the whole framework. These factors point to further…

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Jens Larsen headshot
Jens Larsen
PhD
Macro Strategist
London

1. When might a COVID vaccine become available?

In light of the recent positive news on the COVID vaccine front, it is possible that a vaccine could be authorized for use in the US as early as late 2020. Additional vaccines could be authorized or approved during the first quarter of 2021.

The logistics of vaccine distribution will be daunting. Under Operation Warp Speed, vaccine developers have already been manufacturing vaccine inventory at some risk, in anticipation of favorable efficacy and safety data. Nevertheless, the immediate demand will likely far exceed the initial supply.

Priority will be given to high-risk health care workers and first responders; then to people of all ages with comorbid conditions that put them at elevated risk of poor outcomes, along with older adults living in crowded circumstances; then to all adults over age 65; and so on. It’s likely to be well into 2021 before everyone in the US can be offered a vaccine.

2. What’s the prognosis for those infected?

It’s a moving target and depends on several factors, including the underlying health and age of the patient, the ever-improving medical knowledge of optimal case management, and the availability of medications active against the virus.

The observed death rate from COVID-19 has dropped considerably since the pandemic first reached the US and now stands at…

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Bob Deresiewicz
Bob Deresiewicz
MD
Global Industry Analyst
Boston
Wen Shi
PhD, CFA
Global Industry Analyst
Boston, MA

While the UK equity market appears attractively valued and has the potential for a rebound, I remain neutral on UK equities for now as I believe the uncertain political outlook provides a poor basis for active risk taking. In essence, the outcome of the Brexit negotiations is hard to judge, and a non-cooperative outcome could prove highly disruptive for the UK economy and equities. In my view, this risk is not priced into the market at present.

The UK has had a poor COVID crisis

The UK’s health and economic outcomes have been in line with the worst in Europe, and managing this twin crisis will remain problematic in the near term. At the same time, the UK faces longer-term challenges, such as changes in the migration framework, a sharp rise in minimum wages and the perennial issues of low productivity growth and a large current-account deficit. Together, these near-term and structural challenges create a…

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Jens Larsen headshot
Jens Larsen
PhD
Macro Strategist
London

While economic activity is likely to recover slowly in the euro area, I believe the risk of a much worse outcome has abated. Improved macroeconomic policy should lead to a stronger recovery, driving further reductions in the valuation gap between US and euro-area stocks.

The COVID-19 crisis has caused a deep recession in the eurozone, and I don’t expect activity to return to end-2019 levels until mid-2022. A recession of this magnitude leaves many kinds of economic scars. Jobs and businesses are destroyed, and the necessary reallocation of labour and capital is expensive and takes time. Balance sheets are damaged as a result of falling incomes, and the continued uncertainty constrains investment and consumption.

On the plus side, I believe Europe’s management of the health crisis and the economic policy response have been strong enough to substantially reduce downside risks to…

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Jens Larsen headshot
Jens Larsen
PhD
Macro Strategist
London

COVID-19 impact on global supply chains

Localization. Digitization. Industrial protectionism. In the wake of COVID-19, the world is eager to form more resilient supply chains. These efforts could affect a range of industries as well as fiscal and monetary policy. In this 17-minute audiocast, Geopolitical Strategist Thomas Mucha speaks with members of our Global Macro Team about the future of global supply chains.

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Juhi Dhawan headshot
Juhi Dhawan
PhD
Macro Strategist
Boston
Jens Larsen headshot
Jens Larsen
PhD
Macro Strategist
London
Thomas Mucha
Thomas Mucha
Geopolitical Strategist
Boston

Earlier this summer, I virtually participated in an institutional conference with about 100 other asset managers and prominent asset owners from the US, Canada, Europe, Australia, and New Zealand. It was well worth my time. Here are my main takeaways, along with some personal observations on the post-COVID-19 industry landscape.

1. Economic assumptions and forecasts were more dire than I’ve seen internally. While Chinese gross domestic product (GDP) is expected to reach pre-COVID levels this year, the US may not get there until mid-2021 and likely only on the strength of “50% of the economy in steep recovery,” according to one conference participant. The other half of the US economy may..

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Mark Mandel
Mark Mandel
CFA
Equity Portfolio Manager
Boston

The COVID-19 pandemic has represented a near-perfect storm for the world’s leading technology companies. Both earnings growth and valuation multiples have risen to extraordinary levels. Naturally, this raises questions about the sustainability of the current dynamics and the prospective risks and opportunities for investors.

The enduring case for tech

The technology sector’s strongest companies were already executing at a high level coming into 2020 — growing fast, expanding margins, and reinvesting in their value propositions. The COVID-19 pandemic has accentuated these characteristics by accelerating the need for consumers and enterprises to digitize. In addition to the COVID-19 tailwind, I think these firms deserve significant credit for their agility and decisiveness — as both attributes have allowed them to pivot quickly to capture these growth opportunities. Furthermore, I believe these companies’ unprecedented…

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Daniel Pozen
Dan Pozen
Equity Portfolio Manager
Boston

The US hospital sector saw a substantial direct impact from COVID-19, primarily via the sharp decline in elective medical procedures, but also received significant aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. So what now?

Ultimately, the performance of hospitals — and the municipal bonds (munis) they issue — will depend on the severity and duration of the current health crisis. We expect diminished revenues for the remainder of 2020, although many hospitals are cutting costs and deferring capital spending to help offset this. We believe hospitals with strong balance streets and fundamentally viable operations are best positioned to weather the crisis; for weaker hospitals, ratings downgrades are likely.

The current condition of hospitals

Coming into the pandemic, financial performance across the US hospital sector was largely stable. Most health care providers were managing through various sector headwinds, thanks to…

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Jennifer Soule
Jennifer Soule
Fixed Income Credit Analyst
Boston

COVID-19 impact on emerging markets

The pandemic has hit some emerging markets harder than others. In most cases, preexisting macro, debt, and fiscal situations, as well as health care infrastructure, have been key determinants of a country’s ability to cope with the crisis. In this 20-minute audiocast, Geopolitical Strategist Thomas Mucha speaks with members of our Global Macro Team to discuss the outlook for the emerging markets they cover.

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Mary Gillian Edgeworth
Gillian Edgeworth
Macro Strategist
London
Matt Hildebrandt
Matt Hildebrandt
Macro Strategist
Boston
Ludvig Soderling
Ludvig Söderling
Macro Strategist
Boston

The agency credit-risk transfer (CRT) market was one of the hardest-hit credit sectors, driven by both fundamental and technical factors, when the COVID-19 pandemic battered financial markets in March 2020. At the time, we viewed the sharp sell-off in CRT tranches as a technically driven overreaction to an unprecedented crisis, with the resulting prices not reflective of the sector’s true credit risk.

Since then, the recovery in CRT prices has been nearly as…

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Daniel Kim
Daniel Kim
CFA
Fixed Income Credit Analyst
Boston
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