- 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.