Goldman Sachs has backed Britain’s FTSE 100 and Germany’s DAX to outperform in a resurgent year for European equities.
European markets got off to a solid start in 2021, with the rollout of Covid-19 vaccines, a Brexit deal and Democratic control of all three branches of the U.S. government giving investors hope for a robust economic recovery.
The pan-European Stoxx 600 was up around 2.4% year-to-date as of Tuesday afternoon, despite containment measures being implemented in a host of major economies, most notably a strict nationwide lockdown in England.
Given the slow start to vaccine rollouts and the likelihood that the new strain of the virus will ripple through the euro area, with tighter containment measures extending into February, Goldman economists now forecast a -0.1% contraction across the euro area in the first quarter of 2021, with a sharper -1.5% “double-dip recession” in the U.K.
Goldman is also recommending investors go long on Germany’s DAX for similar reasons, for like the FTSE 100, it has underperformed in recent years and is similarly aligned with the health of global growth.
Much of the recovery for global stock markets since the March 2020 crash has been driven by unprecedented fiscal and monetary stimulus from governments and central banks, and Goldman expects fiscal policy to remain highly accommodative through 2021.
Stehn suggested that a vaccine-led bounceback in services, expansionary fiscal policy and a “supportive global environment” with U.S. forecasts upgraded following the Democratic victories in the Georgia Senate runoff, will lead global growth to outstrip consensus forecast this year.
Goldman projects euro area real GDP growth of 5.2% for 2021 and 4% for 2022, both significantly above consensus, with the bloc’s economy returning to its pre-crisis level at the end of this year.
European markets close mixed as investors focus on coronavirus, U.S. politics
European stocks closed mixed on Tuesday as investors remain focused on the latest coronavirus developments and the state of U.S. politics.
The pan-European Stoxx 600 closed just a touch above the flatline Tuesday, with autos stocks adding 1.7% while utilities shares dropped 1.5%.
An increase in the number of coronavirus cases being seen worldwide is weighing on sentiment. Investor focus also remains fixed on coronavirus news and political events Stateside; House Democrats on Monday introduced an article of impeachment against U.S. President Donald Trump for inciting the mob attack at the Capitol last week. The lower chamber plans to vote on the article sometime this week.
Investors are also weighing up the prospect for additional U.S. fiscal stimulus after a Democratic sweep of Congress. President-elect Joe Biden pledged Friday a hefty economic stimulus rollout, which he said will be “in the trillions of dollars.” More details will follow in a formal announcement on Thursday, six days before he is slated to take office. The need for further stimulus was underscored by an unexpected job loss in December.
Reference: CNBC
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