Return of risk appetite to buoy assets if virus contained

Market conditions have generally improved in recent months, with government bond yields remaining low, corporate bond spreads almost back to their pre-coronavirus levels and the FTSE 100 recovering almost half of its 33% slump in February and March. And we think that there is scope for the FTSE 100 and the pound to rise further this year due to a continued return of risk appetite as the economy recovers from the coronavirus crisis, and monetary policy remaining ultra-loose. However, the renewed sell-off in global equities highlights the downside risks. Indeed, a resurgence of the virus, a disappointing economic recovery, or the Brexit transition period ending without a trade deal would mean that equities and the pound make little progress, and perhaps suffer renewed falls.