Market Compass March 2019

Edited by the Macro & Market Research Team.
A team of 13 analysts based in Paris, Cologne, Trieste, Milan and Prague runs qualitative and quantitative analysis on macroeconomic and financial issues.

The team translates macro and quant views into investment ideas that feed into the investment process.

  • Risk assets have recovered in full, despite the slump in exports and industrial data. This rally still has some potential for now.
  • Global risks still abound (not least the US/Euro Area trade spat), but the near-term outlook appears rather friendly. We remain confident that a sharper global downturn will be avoided.
  • Importantly, low inflation has helped central banks turn more dovish, creating the conditions for a ‘mini-Goldilocks’.
  • We keep a pro-risk bias, with a prudent overweight in equities and an underweight in Govies. Also, we trim our short-duration bias especially in credit, where a steeper credit curve makes longer-dated Euro Investment Grade more attractive. Finally, we further reduce the cash overweight.


US: Fiscal stimulus to boost GDP growth to 5.5% in 2021
The thin majority in the Senate will allow the incoming administration to deliver quickly a sizeable fiscal stimulus. We expect a package worth around US$ 800bn (on top of the US$ 900bn already agreed on in December), centred on the strengthening of direct income support to households, extended unemployment benefit and aid to local governments.
Last minute Brexit deal merely avoids the worst
A last-minute deal avoids falling back to WTO rules: After intense and painful negotiations, the UK and the EU finally agreed on Christmas eve on a Trade and Cooperation agreement. This prevented both sides to fallback to WTO rules.
2021 will see a ‘repair’ of the deep Covid-19 damages, with the economy set to rebound strongly as society normalises into summer. But there is much to despair about. Potential growth will be lower out of this crisis. Employment will recover more slowly and Covid has fanned inequalities. Investors can also lament about the fall of future investment returns.