The content in this infographic was relevant when it was published on 18 June 2020.
Current views may differ.
Prior to the Covid-19 recession, the US labour market was already a fragile barbell, with mid-skilled jobs falling as a proportion of overall employment.
Mid-level skill jobs have lost share in the labour market, while low-level jobs have gained
Low-level skill jobs
Middle-level skill jobs
High-level skill jobs
60%
50%
40%
30%
20%
10%
0%
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Share of US labour market
Source: Haver, UBS.
The Covid-19 crisis introduced further weaknesses because of its disproportionate impact on service sector jobs due to social distancing. Given the possibility of faster automation plus the global nature of this demand hit, the labour market, and therefore consumer confidence, may not improve very quickly.
If dampened consumer confidence leads to greater saving; corporates will likely move their focus away from raising cash and towards deleveraging.
UBS believes a focus on free cashflow amid higher debt and uncertainty could mean that corporate capital expenditure remains weak, which would have a negative impact on long-term earnings growth expectations.1
Outside the US, central banks’ large quantitative easing programmes have not been able to push real interest rates lower, leaving it up to fiscal policy to buffer against future growth shocks.
But vigorous government spending has been dampened by the fact that it is only partially compensating for a vacuum of spending elsewhere.
Limited policy ammunition risks weak responses to future shocks, which could significantly increase earnings volatility.
Whilst some investors are worried about inflation, UBS believes negative output gaps, weak oil prices, a subdued money multiplier2 and limited policy buffers for the future mean significantly higher disinflationary risks.
Against that backdrop, it should be hard for value stocks to perform strongly for extended periods without a meaningful rise in inflation expectations and commodity prices.3
Sectors in focus
The lower-for-longer backdrop supports demand for yielding investments such as Real Estate.
With lower growth and lower interest rates, profitability in the Banking industry is unlikely to return to pre-Covid-19 levels
Falling discretionary purchases and limited disposable income could hit the General Retail sector
Special purpose acquisition companies, or Spacs, have taken Wall Street by storm this year. Spacs are shell companies that raise money by listing on the stock exchange.
Asia's R&D spend is on track to exceed Europe and the US combined by 2020. But which countries are innovating, what are the implications and are investors pricing in the potential?
A number of governments, central banks and even some economists now advocate a switch to all-digital currencies. With the rapid rise of mobile payments, the long-term survival of cash seems precarious.
Nearly a decade of low interest rates coupled with tax advantages have encouraged many companies to opt for debt to underpin their growth. But could this era be coming to an end?
If the US put tariffs on Chinese goods, the impact would be felt way beyond the borders of both countries. China is the world’s biggest exporter, but it’s also the second biggest importer, with many of those imports coming from other Asian countries.
As the process of Brexit continues, the UK’s neighbours are eyeing up the business they can take from London, and the City’s banking sector is the real prize.
The cryptocurrency that was invented to disrupt traditional banking through its decentralised model is under increasing strain as it grows in popularity.
Electric Vehicles are going mainstream, but when will they become profitable for manufacturers, and which sectors and firms are set to benefit the most?
More and more governments are aiming to phase out cash, ostensibly to curb tax avoidance and criminal activity, while some countries are making leaps and bounds towards a cashless future without a backwards glance.
22 fintech companies around the world are now worth more than $1bn and bankers are becoming worried about these upstarts, especially since new legislation in Europe may force them to share precious customer data with their fintech rivals.
Since the global financial crisis, major central banks have printed money and bought assets worth $12tn. But can we now return monetary policy to something like normal?
The drive towards a cashless society may eventually eliminate cash-based crimes, but there are myriad ways our digital life can be exploited by criminals and even governments.
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