(WEEKLY PANDEMIC) MARKET COMMENTARY – FINANCIAL ROTATION IN TEN CHARTS

Social distancing makes a huge difference. Covid has receded in the developed world, and much faster in countries that have observed strict social distancing, for instance much faster in Italy than in the US (see chart). The mass protests (George Floyd), notwithstanding their merit, may only aggravate the matter in the US. Arguably, those countries successively flattening the curve now may be more exposed if and when a second Covid-19 wave appears

  • Market Commentary

Highlights:

  • The number of new Covid-19 cases has surged to record highs, as the US improvement sharply lags the European one, while the virus is vivid in selected EM countries.
  • But financial markets are celebrating the reopening of the global economy, exemplified by the far better than expected US employment report for May.
  • Financial rotation has accelerated, with laggards and cyclicals assets catching up with a vengeance. The rotation may continue into summer – with much greater moderation – as the global economy springs back to life and global investor pessimism fades.
  • RIDE the dollar pullback… Extraordinary debt monetization, dovish forward guidance from the Fed and the November election may well feed the fast pullback of the dollar. This would be generally positive for risk assets, and most beneficial to EM equities, which have lagged in the recent catch-up.
  • … But FADE the bond sell-off. A new chapter in the cyclical recovery trade has seen bond yields jump higher. This may be the single biggest threat to the risk rally. We cannot exclude a positioning flush – but see the rise in yields as clearly unsustainable.

Download the full publication below

(Weekly Pandemic) Market Commentary – Financial rotation in ten charts
Download
PDF
MORE INSIGHTS

RELATED INSIGHTS

READ NOW
FIRST Q2 EARNINGS RESULTS SHOW POSITIVE SURPRISES. EXPECT LIMITED NEGATIVE REVISIONS
Growth (yoy) is clearly negative but the magnitude should deteriorate further (to be in line with expectations) as more firms will report in the next few weeks: the next two weeks will see the bulk of reported results.
READ NOW
NO ECB SUMMER SURPRISE THIS YEAR, GOVERNING COUNCIL WANTS AGREEMENT ON RECOVERY FUND
After having augmented the volume of the Pandemic Emergency Purchase Programme (PEPP) in June, the Governing Council did neither act nor announced outright action at today’s meeting.
READ NOW
CHINA’S GDP SURPRISED ON THE UPSIDE BUT DEMAND STAYED RATHER WEAK
China’s GDP rose by 3.2% yoy in Q2, after a Covid-19 related drop by 6.8% in Q1, according to data published by China’s statistical office this morning.
MORE INSIGHTS