2 min read.Updated: 15 Dec 2020, 12:11 PM ISTBloomberg
Investors have found some consensus on a recovery in growth and inflation heading into the new year, driving global yield curves steeper, rallies in corporate bonds and a slide in the U.S. dollar
What could go wrong for investors next year after the ultimate black swan event of the coronavirus pandemic? Well, a lot, judging by Standard Chartered Plc’s list of potential market surprises for 2021.
Democrats winning control of the Senate, a U.S.-China detente driving a yuan rally to 6 versus the dollar, or oil crashing to $20 per barrel on an OPEC rupture. Those are among the eight “unlikely" events that could upend markets, according to the bank’s global head of research, Eric Robertsen, in an annual financial-markets surprises report.
A pandemic wasn’t on too many lists last year, but global markets have largely recovered from the shock, helped by emergency fiscal- and monetary action. Investors have found some consensus on a recovery in growth and inflation heading into the new year, driving global yield curves steeper, rallies in corporate bonds and a slide in the U.S. dollar.
As such, the biggest blow would be a setback to vaccine delivery, in Robertsen’s view.
“With some measures of risk trading back at pre-Covid lows, the ‘reflation’ consensus appears especially vulnerable to bad news," he wrote.
As for last year’s “non-zero probability" events, Robertsen did nail it with his vision of the Fed slashing interest rates and gold hitting $2,000 an ounce on extended central bank asset purchases. He was also close with a 20% gain in the S&P 500. Here is his latest tally of underpriced risks for next year:
1. Democrats win Georgia’s seats to take the U.S. Senate