The US Elections, the Vaccine and the New Covid Waves
Two positive events triggered a wave of optimism and appreciation of assets in the large majority of countries last week: the victory of the Democrat Joe Biden in the USA and the announcement by Pfizer that its vaccine is 90% effective in preventing infections by the new coronavirus. With the Federal Reserve having practically exhausted its monetary stimulus ammunition (it has purchased more than US$ 2 trillion worth of Treasuries, leaving yields on bonds maturing in 2 and 5 years pegged to the fed funds rate), the animus came from the forecast that a Democratic administration will be more disposed to step up the fiscal stimuli. On the other hand, though, a second wave of Covid-19 in Europe has prompted governments to impose new isolation measures, making it more likely that at least those countries will suffer a new wave of GDP contraction. Since the United States is undeniably experiencing a second wave now, it seems inevitable that the global economic recovery will be interrupted, with some observers venturing to predict that instead of a V-shaped recovery, there will be a W-shaped one. In Brazil, the financial market was equally contaminated by the appetite for risk, but there are also signs of a worsening contagion picture along with the risk of further extension of the emergency relief program. In this Report we discuss the effects of the increased appetite for risk on the price of assets, the unease over the evolution of the resurgent pandemic waves in the world, and the outlook for the Brazilian economy.
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