· The outlook has improved markedly and broadly in recent months, thanks to the rapid development of evidently highly effective vaccines (plural!), which have raised the odds of returning to something close to what was the norm just a year ago when a global pandemic was simply an extreme and low probability scenario for risk models.
· The expectation of strong, above-trend growth over the coming year, combined with the commitment from central banks around the world to keep monetary policy highly accommodative for the foreseeable future, suggests the general economic backdrop for 2021 should be constructive for risk assets such as equities and corporate credit.
· But, with that in mind, the more near-term outlook remains challenging and the recovery is likely to take a step back as the resurgence of COVID-19 has necessitated reinstituting lock downs across the world, particularly in the Developed Markets.
· In other words, after making some material progress through the middle of last year, the global economic recovery took a step back as 2020 ended and is starting the New Year on its back foot.
· As such, the prospect of a sentiment-driven resurgence of market volatility in the coming weeks and months remains very much on the table.
· There is reason, however, to argue that there is plenty of scope for the global economy to get its feet under it in earnest, such that it can again take cautious steps forward in the not-too-distant future and pick up the pace to a brisk run by year-end.
· As such, maintaining a disciplined and long-term focus on broader underlying macroeconomic themes, and managing risk exposures accordingly, will likely be paramount in helping block out any near-term market noise.
· Last year was tumultuous and the coming months are likely to be challenging, but it appears that better days do lie ahead and they may well be here sooner rather than later.
View the full analysis below.