Tail risks get thinner

Investors entered the autumn with great anxiety about the trade war and Brexit. Those risks have abated, and so have flight-to-quality flows. Headline risk into yearend includes trade war news (US, China, EU) and soft US employment data. Yet we don’t see those derailing market trends.

  • Market Perspective

Highlights:

  • Investors entered the autumn with great anxiety about the trade war and Brexit. Those risks have abated, and so have flight-to-quality flows.
  • Headline risk into yearend includes trade war news (US, China, EU) and soft US employment data. Yet we don’t see those derailing market trends.
  • Equities continue to offer attractive earnings yields relative to bonds; it is hard to resist the appeal unless one fears a 2008- or 2011-like scenario.
  • For a similar duration, the EuroAggregate Corporate (IG) yields 50bp more than 6y Portugal (BBB). CSPP returns; we stay long Credit.
  • The USD is pulling back from the end-September peak. This too bodes well for risk conditions.

Download the full publication below

TAIL RISKS GET THINNER
DOWNLOAD
PDF
MORE INSIGHTS

RELATED INSIGHTS

READ NOW
CHINA’S Q4 GDP GROWTH SURPRISED ON THE UPSIDE, BUT RISKS TO THE OUTLOOK HAVE INCREASED
This morning, China published its Q4 GDP growth alongside with December monthly activity data. Q4 growth accelerated to 6.5% yoy which lifted total 2020 GDP to 2.3%. December real activity data were more mixed. While exports came in strongly, important domestic demand components were a bit unsteady.
READ NOW
COVID-19 FACTS & FIGURES
US President-elect Joe Biden has unveiled a $1.9 trillion stimulus package proposal. Following the recent increase in cases, China has imposed new restrictions and lockdowns in the Hebei province. Canada has implemented new restrictions and a provincewide curfew in Quebec that will last until February 8. German Chancellor Angela Merkel warned that the recent rise in Covid-19 cases could force the country to prolong the nationwide lockdown until April.
READ NOW
EQUITIES: STAY POSITIVE WITH A VALUE-CYCLICAL TILT
Following a monster rally in stocks last autumn, multiples are well above historical averages, but equity investors can count on lingering low yields, tighter credit spreads and increasing central banks’ balance sheets which in turn maintain low the cost of equity and the discount rate of future cash flows.
MORE INSIGHTS