Positive vaccine news could drive up global growth expectations, says Goldman

Positive news flow on a Covid-19 vaccine is likely to boost risky assets further, Goldman Sachs said in a note on Tuesday, but in contrast to the initial US election relief, it has the potential to drive global growth expectations higher alongside lower uncertainty on the recovery.

This should support further rotation into value and cyclical sectors, higher yields, steeper rates curve and lower levels of volatility, the bank said.

"Additionally, our strategists still like emerging market assets which should benefit from a continuation of the dovish Fed stance, a decrease in risk premia related to trade tensions and elevated global growth," it added. GS economists expect global growth at 6% for 2021.

Goldman noted that until Pfizer’s announcement on Monday about its Covid-19 vaccine with BioNTech, the pro-cyclical rotation had taken a pause.

"Following yesterday’s moves, the underperformance of value versus growth, as well as the decline of bond yields and breakeven rates have come to an end," it said. "Moreover, the sectors that were most negatively affected by the virus such as airlines and hospitality, took the lead in yesterday’s price action."