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Cross-Asset Quarterly Outlook

September 2020*

A Surfeit of Imponderables

Data releases have provided a slew of positive surprises recently (Chart 1), continuing to point to a broadly reflationary environment. Yet, any recovery will have to overcome the triple challenges of scarred labour markets, weak business sentiment and investment as well as deteriorating global trade relations. What is more, risks of setbacks on the road to recovery remain high due to recurring infection clusters as business activity and lifestyles attempt to normalize and as the end of expansive fiscal support programs looms large.

Chart 1: Citi Economic Surprise Indices

Source: Citi, Bloomberg. As of September 11, 2020.

Indeed, the crisis stands out as having hurt the supply side of the economy as much as the demand side. But the recovery also has powerful supports: unprecedented fiscal and monetary stimulus, forced savings by households and businesses and a strong worldwide push (albeit not in a coordinated fashion) to search for inoculation against COVID-19. Historic sea-changes have occurred on all these fronts: aside from the unprecedented size of the respective national fiscal and monetary stimuli, the EU agreed a €750bn recovery fund for its member states, the US Federal Reserve (Fed) altered its inflation targeting regime to provide prolonged accommodation and Russia released a vaccine into the general population without completing the internationally recommended and essential Phase 3 trials.

*The publication reflects asset performance up to August 31, 2020, and macro events and data releases up to September 10, 2020, unless indicated otherwise.

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The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.

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All rights reserved.

City of London Investment Management Company Limited (“CLIM”) is authorised and regulated for the conduct of investment business within the UK by the Financial Conduct Authority (FCA), registered as an Investment Advisor with the United States Securities and Exchange Commission (SEC) and regulated by the Dubai Financial Services Authority (DFSA). Registered in England and Wales No. 2851236. Registered Office: 77 Gracechurch Street, London, EC3V 0AS, England.

© 2020 City of London Investment Management Company Limited. All rights reserved.