June 21, 2020

(WEEKLY PANDEMIC) MARKET COMMENTARY – MIND THE CURVE

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In Short

The virus is galloping, but less deadly. Covid is spreading like never before, the stats say. 19 June saw 177k new Covid cases, the highest ever.
(WEEKLY PANDEMIC) MARKET COMMENTARY – MIND THE CURVE
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Highlights:

  • The Covid virus is galloping, but the death rate is falling fast. In both cases, the dynamic picture is distorted by increased testing. The biggest risk lies in a second wave this autumn, but the trajectory of an eventual new outbreak would probably skip the initial acute phase due to the improved degree of cultural and material preparation.
  • Recent economic data confirms that the summer will create a V-shape illusion, which may keep risk assets supported a while longer, and confer a small advantage to cyclical assets.
  • Policy support keeps coming, not least in the US where the Fed has announced direct purchases of corporate bonds in the secondary market while Congress is discussing a 1.0-1.5 trillion program of infrastructure spending.
  • Volatility is retreating across all assets, most spectacularly in Rates, where central banks want to (and will) anchor long yields at a low level. This tends to support the Fixed Income carry trade, hence tight credit spreads. This should also produce steeper 10-30y curves, especially in EUR swaps (slope there currently well below fair value). The Dutch pension reform in the making could support normalization there.

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(WEEKLY PANDEMIC) MARKET COMMENTARY – MIND THE CURVE

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