Multi-Asset Sputnik. October 2020 - Not Out of the Woods Yet

Calling the outlook "uncertain" is a bit of a cliché, but as a fraught year enters the final stretch, the label really does fit. The peripatetic coronavirus has re-emerged in a number of regions, threatening to derail the nascent economic recovery. This comes as the impetus for new stimulus from leading global economies is seemingly waning - or in the case of the US, mired in deadlock. Moreover, geopolitical tension is on the rise and the US election promises to be contentious and possibly messy. Overall, the risks to the global economy appear to outweigh the drivers that would be supportive for markets. > Global FX/rates. The recent dollar strength is likely temporary. The global economic recovery remains decent, while the second wave of the virus in Europe could start fading soon, which should boost the euro. > Global bonds. The resurgence in Covid-19 cases and the November US election blur the near-term outlook for EM assets. We expect long-term US Treasury yields to remain at subdued levels through year-end and anticipate EM debt trading with a slight positive bias.> Global equities. Near-record valuations and uncertainty about the near-term economic outlook, especially the prospects for stimulus, leave us preferring a cautious, value-based positioning.> Oil. We believe that a recovery in Chinese crude purchases in 4Q20 will be key to bring about a turnaround in the crude market. Moreover, if OPEC+ manages to improve compliance with the output cut deal, the stock draws should accelerate heading into the year-end.> Gold. Positive EUR/USD momentum, combined with lower 10y Treasury yields and the US election, are spurring elevated safe-haven demand, which should support gold prices in 4Q20.> Russian equities. In the current environment, we prefer stocks with reliable dividend yields, hard-currency revenues and other defensive characteristics.> Russian Eurobonds. The outlook is clouded by the upcoming US election, risks related to the resurgence of the pandemic, and the recent flare-up in Nagorno-Karabakh. Russian Eurobonds may underperform similarly rated papers, but should outperform lower-rated ones.> Russian FX/rates. Geopolitical tension accounted for most of the ruble's depreciation in 3Q20, and will likely keep driving it, especially as the US election approaches. Should the tension abate, the ruble will likely quickly recover. > Ruble bonds. The OFZ curve steepened in 3Q20 due to rising geopolitical risks, anxiety over increased OFZ issuance and the CBR rate cuts. Rising geopolitical tensions may cause intermediate OFZs to outperform long-dated issues.