Credit Suisse sees ‘considerable’ risk that U.S. and much of Europe will likely need COVID-related lockdowns this winter

After taking an initial wait-and-see approach on the new omicron variant of coronavirus, Credit Suisse
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+3.57%,
one of the world’s largest investment banks, now sees a “considerable” risk that the U.S. and large parts of Europe will be unable to avoid “stringent” lockdowns this winter.

Credit Suisse’s view is at odds with that of President Joe Biden and the nation’s top infectious disease expert, Anthony Fauci, both of whom have indicated no need to impose fresh lockdowns in the U.S. Instead, the president, set to speak Tuesday afternoon, is planning to announce 500 million free rapid tests for Americans, increased support for hospitals, and a redoubling of vaccination and boosting efforts.

The assessment by the bank’s investment committee comes as global stock indexes on Tuesday were broadly rebounding a three day selloff, helped by optimism on Biden’s plan to fight rising COVID-19 cases and the possibility that vaccines may be more effective than previously thought in fighting the fresh variant.

Still, while Americans remain weary about renewed curbs to their freedom, new COVID restrictions have been prevalent in Europe, where the Netherlands has closed all nonessential shops, bars and restaurants until mid-January; Germany and France have banned travelers from the U.K.; and Ireland has imposed curfews on pubs and restaurants.

Zurich-based Credit Suisse says its thinking is based on the rapid pace at which omicron is spreading in the U.S., U.K., and other countries.

“This suggests that the risk is considerable that the USA as well as large parts of Continental Europe will likely not be able to avoid stringent lockdowns over the winter months in order to provide relief to a challenged health care system,” according to an investment committee report released Tuesday.

Read: London stocks fall as omicron’s spread leads to new COVID restrictions

“Similarly, given the high infectiousness of the Omicron variant, Asian countries also run the risk of renewed restrictions,” the report said.

Credit Suisse’s investment committee released its conclusions following a same-day, ad-hoc meeting, in which it also decided to go to a neutral allocation on stocks from a previously moderate overweight position. In particular, the committee “decided to reduce the developed market equity weighting in portfolios to strategic levels,” after remaining in a wait-and-see mode earlier this month.

Credit Suisse’s base case “still calls for robust global growth to be maintained over the medium term,” and its investment committee still believes that “equity markets have upside potential over a 6-month time horizon.” It remains tilted toward more cyclical markets such as Germany and Japan, while reducing its allocation to the U.K. and retaining an underweight position in government bonds.

“Even though we do not foresee a situation as drastic as at the start of the pandemic, we could face a situation in which the growth prospects are waning while central banks are forced to tighten liquidity at the same time,” the report said.

On Tuesday, Treasury yields climbed across the board on renewed investor optimism, with the 10-year rate
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1.484%
rising back above 1.49%. Meanwhile, Dow industrials
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+1.57%
were up by more than 500 points, while the S&P 500
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+1.49%
and Nasdaq Composite indexes
COMP,
+1.72%
each climbed more than 1%.

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