On July 8, we hosted our first series of Experts In-House events designed to share the latest thinking from the bank’s specialists and answer some of the important questions posed by our clients around the world.
Christian Nolting, Chief Investment Officer & Head of Investment Solutions, Deutsche Bank International Private Bank, and Frank Kelly, Head of Government and Public Affairs, Deutsche Bank – Americas, joined Salman Mahdi, Vice Chairman of Deutsche Bank International Private Bank, to discuss the opportunities and challenges ahead, the forthcoming U.S. election and what we might expect from the eventual winner.
2020: unprecedented uncertainty and its implications
“Uncertainty is very, very high at this point in time,” Christian Nolting told attendees, referring to data from the World Uncertainty Index. “That might not be a surprise but if you look all the way back to the 1960s this is the highest level of uncertainty you have, because you have so many issues which are on top of each other.”
The way in which governments and central banks have responded is without precedent, and the long-term impact of their extraordinary measures is also unclear. “The Fed has increased the balance sheet since the beginning of the year by 71%, which was already at elevated levels, so that's quite remarkable,” Nolting said. “In April, we saw positive signs based on massive stimulus on the fiscal side, on the one hand, and also on the monetary side.”
Defining the new landscape shaped by the pandemic, Nolting referred to high initial U.S. jobless claims figures which hit 6.8 million in March this year1. “We have seen some improvement but… unemployment will probably stay for quite some time and that's also our forecast for the second half [of the year].”
What clients are most interested to know, he suggested, is when we can expect global growth to return to pre-crisis levels – and they are right to be sceptical of those who forecast a V-shaped recovery. In the view of his team, a partial rebound can be expected this year, followed by a gradual recovery. “From our perspective, it will take until 2022 – probably the second or third quarter – to be back at 2019 [growth] levels and that has implications for the markets as well.”
COVID-19 has magnified pre-existing trends
Referring to the megatrends highlighted in our then latest Chief Investment Office (CIO) Outlook Update, “Through difficult waters”, Nolting argued several of these trends including technology, healthcare, heightened trade tensions and decelerating globalisation are here to stay. Decelerating globalisation, he highlighted, will have consequences. “Down the road, less globalisation means that we have some kind of inflationary effect, which probably would be welcomed by the central banks to a certain extent,” he said.
Another question he often faces is what this crisis means for the future of environmental, social and governance (ESG) investing. “If I look at portfolios in the crisis, those which had an ESG aspect to them have really outperformed,” he said. “I would think that this trend will continue.”
As nationwide lockdowns appear to be easing in some parts of the world, another question he said he is often asked is whether a second round of lockdowns is priced into the market. “The market is a bit surprised whenever it comes to lockdown measures,” he explained. “I'm not sure the market has priced in regional lockdowns. So that's something we need to watch.”
What we might expect from the U.S. presidential election
“I think this is going to be one of the most seminal elections in recent American history,” Frank Kelly told attendees as he opened his analysis on the forthcoming U.S. presidential election. “We're seeing such divergence in ideologies and philosophies.”
He explained that the number-one question he gets from clients is: ‘What does a Biden White House look like?’ The answer, he explained, would come down to whom Biden selects as his Vice Presidential running mate – a decision that will likely impact whether we see what Kelly called “Obama administration 2.0” or a shift towards the more progressive wing of the party.
Kelly set out a range of issues likely to shape the policy battleground and affect polls week by week in the run-up to November. These included the recovery of the economy, social justice, trade, the U.S.-China relationship, healthcare, crime, taxes, infrastructure and climate change.
The role of infrastructure investment in U.S. politics
A key issue that he anticipated we are going to see supported from both sides is investment in infrastructure. “We [the United States] need better technology, broadband, 5G capabilities. We need to be able to build highways that can deal with electric cars and driverless trucks,” he explained. He said that he expected a multi‑trillion dollar infrastructure plan to emerge in early 2021, regardless of who wins the White House.
The environment and climate change will be another significant battleground, with a Biden administration expected to sign up to the Paris climate accord. “The other big issue I think that you're going to see is a carbon tax,” he explained. “Democrats are always seen as being much more ESG‑friendly but a number of conservative Republican economists … have been urging the need to move towards a carbon tax. It's the smartest way to go and we could raise tremendous revenue to pay for infrastructure and certainly help pay down the debt.”
Should the U.S. expect further tax cuts?
Kelly then outlined how the two candidates’ tax plans look set to differ, with the current White House contemplating asking Congress to pass legislation that will lower the corporate tax rate and make it retroactive to the start of this year. “I think that's going to be extraordinarily hard to do but you can see they are willing to take chances and attempt to do whatever is necessary to get the economy going,” he said.
From a Democratic administration, he said he would expect higher corporate taxes as well as higher taxes on high‑net‑worth individuals. “I think the more impactful the legislation, whether it's on healthcare or taxes, or climate, then that will translate to market reactions,” he explained.
“We've all learned that days actually equal months these days, certainly during the pandemic. I wouldn't presume that this election is over by a long shot,” he concluded. “There are going to be a lot of fireworks between now and November.”
Our next global Experts In-House: CIO View event will take place at the end of September, 2020. For more information about this and other Experts Talk events, please speak with your Relationship Manager.
To read our latest CIO Insights quarterly publication, please click here.
Christian Nolting and his team will be monitoring developments closely. For the latest publications from our Chief Investment Office, visit our CIO Perspectives page: