Market Compass
February 2020

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.

  • Just as the US/China trade truce provided broad-based relief, the new Coronavirus in China is unsettling global financial markets.

  • The fast-spreading disease is challenging the global macro rebound, but we still see resilience in the US and Euro area domestic demand.

  • Experience from past episodes suggests that markets tend to overshoot, but rebound once the number of new infections starts to slow.

  • We favour a more cautious stance near term. We maintain a moderate pro-risk tilt in the portfolios, but reduce our exposure to Equities and HighYield (HY) Credit. We keep our overweight in higher rated corporates andan underweight in government core bonds.

MARKET COMPASS FEBRUARY 2020

RELATED INSIGHTS

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.
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.
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.