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Vaccine around the corner, but don’t get comfortable

Lachlan Maddock
— 1 minute read

Morgan Stanley sees an emergency vaccine by early next year, but warns that there’s still plenty of time for the market to retrace its lows.

GDP will recover to pre-COVID levels by the end of next calendar year and a vaccine could be just around the corner, according to Morgan Stanley head of Australian strategy and economics Chris Nicol. 

“We are increasingly comfortable to have a vaccine embedded into our forecast assumptions for emergency use by the first quarter of next calendar year and wider availability to populations around the August-September period next year,” Mr Nicol said told the Stockbrokers and Financial Advisers Association (SAFAA) conference, adding that longer-term business investment decisions still hinged on a vaccine.

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But US stimulus is the “next key fiscal move” that markets need to be on the lookout for – and while Mr Nicol said he wasn’t going to try and call the election, he warned that a Democratic victory “will carry meaningful policy change” and that there’s more chance of a deal pre-election than post.

“Markets will need to calibrate that,” Mr Nicol said. “Senate composition is going to be absolutely critical.”

“Will it be a blue sweep with both houses or will it not? And we need to factor in the mail-in disruptions that are being anticipated which could present as a sort of Al Gore/George [Bush-type] scenario…what that means is genuine uncertainty that is probably going to build, and will probably just create something for the market – from a volatility perspective – to digest.”

All of that – along with the threat of a second wave created by economic reopening – means that there’s still plenty of room for a correction. 

“A growth disappointment, potentially around the fiscal stand-off that currently sits, stimulus delays, and potentially high long-end yields challenging some of these valuations within the market,” Mr Nicol said. “I think if we did get that tradeable correction that Morgan Stanley is calling for from a US perspective, Australia would fully participate in that.”

 

Vaccine around the corner, but don’t get comfortable
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