Market Compass
January 2019

Edited by the Macro & Market Research Team.
The 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.

  • Fears on global growth added to the effects of shrinking support from central banks in triggering market angst.

  • The rise of the US dollar is set to stop as the growth and interest rate gap between the US and Euro Area (EA) shrinks. This will bring some relief to the strongest among the Emerging Markets (EM).

  • Despite still solid US growth, fears of a coming recession and the negative effects of the withdrawal of past monetary stimulus will limit the upside for risky assets and increase the downside risks.

  • Fears of a hard landing, especially in Europe, reflected in asset prices are exaggerated. This allows for a moderate overweight in equity and credit short term

MARKET COMPASS JANUARY 2019

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.