Fra Danske Bank:
- In our base case (60%), we believe that the recovery slows down in coming months, but the recovery continues in 2021. In this scenario, we are bullish on equities where we expect the Q3 US earnings season to surprise positively.
- In our downside scenario (25%), we assume that the virus outbreak worsens in Q4 and Q1, while vaccines are not effective. This would trigger a recession in 2021 but it would be significantly milder than in spring, as it is not a lockdown crisis, while people still believe that growth will improve in 2022 due to better vaccines and treatments.
- In our downside scenario we expect equities will initially react very negatively, maybe falling by nearly 30% as the very positive 2021 earnings expectations are revised sharply lower. However, equity markets will rebound fast as the market foresees the economic recovery in late 2021 and 2022.
- In the upside scenario (15%), Europe and the US manage to control the current virus outbreak with protective measures, and the virus does not create fear among consumers due to much lower mortality rates than in spring, while an effective vaccine becomes broadly available in early 2021. In such a scenario, we expect equities to rise substantially, credit spreads to tighten and the USD to weaken.
