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“We expect the strict restrictions to remain intact until spring, which means more headwinds for the economy in the next quarter. One positive point, however, is that we have received a lot of positive news about corona vaccines recently, and the UK and US have already started their vaccination processes, ”writes Maria Landeborn.
Accelerated vaccination may boost growth in 2021
Danske Bank expects the EU to start vaccinating before the turn of the year. An accelerated global vaccination process during the first quarter of 2021 should reduce the need for restrictions next fall, which may boost growth later in the year, according to the bank.
The fact that the US Congress agreed to a $ 900 billion stimulus package on Sunday night is said to have been more or less expected, and would not have a major impact on the stock market.
WTO rules to wait in case there is no Brexit deal
The EU and the UK failed to agree on a Brexit deal over the weekend, says the strategist, and the issue of fishing rights remains the most difficult knot to resolve. If there is no agreement before the turn of the year, the WTO rules will apply to the trade relations of the parties from 1 January.
“We see a 50 to 50 chance that it will succeed in finding a solution. A hard Brexit would be very negative for the British economy, while the impact on the rest of Europe would be more limited. After strengthening over the past week, the Pound fell overnight into Monday as a result of a combination of closed borders and increased risk of severe Brexit, “writes Maria Landeborn.
Stock preponderance still small in the bank
Looking at the outlook for the stock market, Danske Bank assesses there is a risk of a pullback in the short term after recent gains, but the bank expects global equities to trade more in twelve months than they are today. For this reason, there is a slight predominance of stocks over bonds, says the strategist. With high near-term uncertainty, the US “quality market” is preferred, while a smaller underweight may be found in cyclical European equities. However, as a whole, the bank has increased its cyclical exposure as the industrial sector has moved up to overweight.
“However, we also maintain an overweight position in the IT sector, as it contains a high proportion of quality companies that continue to generate strong profits despite the crisis. Due to both high uncertainty and rapid digitization, structural growth is an attractive investment. Low interest rates for a long time will provide additional support for growing companies on the stock market. Lastly, we also hold an overweight position in emerging market equities and bonds, ”writes Maria Landeborn.
