Agreement on the European coronavirus recovery fund could be a “gamechanger” for the European Union, according to Vincent Juvyns (photo). It’s his main reason to be a bit more positive about European stocks again.
The Global Market Strategist at JP Morgan Asset Management is “very impressed” with the European approach to tackle the impact of the virus. Although a final agreement has yet to be reached, the fact that Germany is taking the lead in this strengthens his confidence this will happen soon.
Juvyns also considers the European efforts to prevent a spike in unemployment, focusing mainly on job retention, a positive. ‘The US, by contrast, has chosen to increase unemployment benefits. This has softened the relative income decline, which is positive. But this says nothing about the unemployment created by the crisis,’ said Juvyns.
Finally, the relative political stability in Europe compared to the US also speak for the ‘old continent’. ‘The upcoming elections in the US are causing unrest, although the outcome of those elections will have little impact on geopolitical relations between the US and China.’
Cautious revival
According to Juvyns, a cautious revival of European shares can also be observed in financial markets. ‘If we compare the European market, corrected for its tilt to financials, with the US market corrected for the tilt to tech companies, we see a similar picture. The success or failure of the European recovery fund can make all the difference.’
However, for Europe this will not automatically lead to a V-shaped recovery. As far as Juvyns is concerned, this only applies in Asia, and in particular in China. ‘The recovery in the US and Europe can better be described as a “swoosh” form, with the beginning resembling a V-shaped recovery, but eventually flattening out.’ Juvyns expects this to level off from 2021 onwards.
Yield curve control
Juvyns points out central banks have never been this active when it comes to yield curve management and will remain doing so for some time to come. Therefore, interest rates will not move significantly in the near future, he believes. ‘Monetary and fiscal measures did not fall behind the curve this time,’ he says. ‘There was less of a wait-and-see attitude and more of a coordinated approach.’
Nevertheless, the global economy has been hit hard and, according to Juvyns, the worst is yet to come as the current picture is based only on Q1 figures.
However, he is not gloomy. ‘The contraction of GDP is unprecedented, but at the same time several indicators show that economies are rebounding faster than expected,’ he says. As an example, he mentioned US unemployment rates that seem to stabilise, as well as less conventional data from travel and navigation apps.
‘These data show that people are on the road again. And I recognize that myself. At JP Morgan AM we are extremely cautious, but I expect to see clients again from August onwards.’
Juvyns is not worried about a second wave of Covid-19 infection. ‘This is primarily due to the fact that our testing capabilities have improved and expanded. We’ve also become accustomed to dealing with this virus,’ he says.