(WEEKLY PANDEMIC) MARKET COMMENTARY – MIND THE CURVE

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.

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.

Download the full publication below

(WEEKLY PANDEMIC) MARKET COMMENTARY – MIND THE CURVE

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis. Currently, among European equity sectors, financials, energy, telecoms, and autos look undervalued while Pharma, utilities and software appear overvalued.
CHINA’S RECOVERY CONTINUED BUT A BIT SOFTER THAN EXPECTED
China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.