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LGT Private Banking Europe House View – November 2020

October 28, 2020

In the medium to long term, the well-known uncertainty factors will continue to occupy the capital markets. Until the showdown in the US elections, patience is required until the election showdown, which is why we are not increasing our risk and keeping liquidity high. We continue to favor equities over bonds with a focus on selection and continue to pursue a barbell strategy. 

LGT Private Banking Êurope House View

The last weeks were strongly influenced by the significant increase in Covid-19 cases globally. At the same time, in Europe the somewhat “eternal“ divorce process between the European Union and the Great Britain is continuing while the Brexit deadline is approaching. Meanwhile, and on the other side of the Atlantic, the US elections for the White House, the Senate and the House of Representatives has entered the decisive phase. In addition to the classic media headline risk, a combination of the three challenges poses great uncertainty for capital markets. We are certain that these insecurities will continue to impact market sentiment in the medium and even long term. 

Second pandemic wave is challenging economic recovery

The latest economic data from the US and China have shown a steady upward trend over the past month. In the United States, retail sales have not only increased compared to the previous year, but are also at a higher level in absolute terms than before the outbreak of the corona crisis. The feedback from small and medium-sized US companies is also more positive. This can be seen not only in the optimism of these companies, but also in their willingness to hire new employees again. Meanwhile, the indicator reached the pre-pandemic level. The positive environment was rounded off last week with the US leading purchasing managers' indicators (PMIs), which showed not only a surprisingly resilient services sector (at 56 points), but also that manufacturing was holding up (at 53.3 points), well above the important threshold of 50. At the same time, the retail sector in China delivered convincing signals and gross domestic product has shown a year-on-year growth despite the pandemic. 

However, the economic recovery is now being challenged by the second pandemic wave. We have seen a strong increase in Covid-19 numbers in the last days and weeks. In our view, it is not appropriate to compare the current wave with the first wave of the corona pandemic earlier this year. On the one hand, we did not have the testing capacity we have today, nor did we have the level of information about the virus. Furthermore, we are probably about seven months closer to a vaccination compared to the first pandemic wave. What could rattle investors' nerves, on the other hand, is that the normal flu season is now beginning in the northern hemisphere and that, in combination with the corona crisis, the economic dynamics could be affected locally, at least in the short term. On this backdrop, a double slowdown could occur. Some countries, especially in Europe, will switch to a slowdown via curfew to avoid a large-scale lockdown, as this would be very challenging to finance. But exactly this state of affairs could then drastically slowdown economic activity following the recovery in the summer period and lead to a short-term economic dent, which will most likely feel like a “moderate slowdown“. In any case, investors' nerves will probably remain strained in the coming weeks.

Showdown in the slowdown

In the complex situation just described with a potential slowdown, the showdown in the US election campaign is now imminent. According to latest forecasts, Democratic challenger Joe Biden continues to have the better cards, whether according to polls, or bookmakers. However, another key question for investors is who will be able to secure a majority in the US Senate, especially with regard to the size of the next fiscal package and with how much freedom and flexibility Joe Biden ­ if the polls are predicting the outcome right ­ can govern. The race in the US Senate remains very close, but in the last few days market participants have been preparing for a “blue wave“ ­ Democrats win both the White House and the Senate ­ or at least have positioned themselves in this direction. Only six days until showdown and then we should have more clarity ­ hopefully. The worst case scenario for financial markets is going to be a hanging game with an election result too close to call.

Investment strategy - patience is required

Patience is needed until this showdown. Meanwhile, the coming days and weeks should provide more clarity how the second Covid-19 wave is unfolding. This means that for the moment we are not increasing our risk and are keeping liquidity high. Across assets, the bond sector remains unattractive and we prefer equities to fixed income. The focus for equities is on selection, we pursue a barbell strategy, whereby we favor companies that benefit from the long-term digitalization trend on the one hand and companies that are favored by the various fiscal packages within the eurozone on the other. Gold remains attractive and we consider the precious metal a long-term cornerstone in a private client portfolio. 


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email:
Editor: Alessandro Fezzi, E-Mail:
Source: LGT Bank (Switzerland) Ltd.

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