Why are people talking about Brexit risks...again?
Brexit risk is not a thing of the past. As the 11-month transition period progresses, look out for the negotiations to become a source of heightened volatility.
Our updated views reflect a moderately greater risk tolerance and a recognition that central banks are “all in.” We are neutral stocks vs. bonds, prefer U.S. equities, overweight investment grade credit and reduce duration to a small underweight.
After a historic quarter of global pandemic and breathtaking fiscal and monetary support, we believe GDP has bottomed. Above Trend Growth is our base case (80% probability). Our preferences include bank capital and high quality securitized credit.
Our updated base case view, to which we assign a 60% probability, looks for global growth to bottom out and gradually transition to a shallow recovery. We see only a moderate risk of inflation, as activity and commodity prices remain low. In this core scenario, we expect central banks to remain accommodative, which we think will support emerging market assets.