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.
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.”
