Tag Archives: 2.) Pictet Macro Analysis

Last week, German chancellor Merkel delivered a surprise about-face when she and French president Macron announced a proposal for a EUR 500bn recovery fund in the wake of the coronavirus crisis. The unprecedented plan involves the distribution of grants, rather than loans, to member states in economic need. The deal is far from done, however, as it is currently opposed by the EU ‘frugal four’, who insist on loans rather than grants, which would over-indebt...

US policymakers’ bold actions in response to the coronavirus bear some traces of the free-wheeling deficits, repressed interest rates and central bank activism (money creation) that form the cornerstones of the Modern Monetary Theory (MMT) playbook. MMT’s popularity is likely to persist, gaining converts among those who previously supported classic assumptions about budget constraints or the ‘crowding out’ of private investment by growing government indebtedness....

Macroeconomy With leading economies likely facing double-digit declines in GDP in Q1 and Q2, we expect Brent oil in the USD10–20 range in Q2 before reaching a long-term equilibrium of USD18 at year’s end. With consumers tempted to remain cautious, the oil sector in deep difficulty and a big rise in unemployment, we expect dire Q2 GDP figures for the US. We have reduced our GDP forecast for 2020 as a whole to -7.7%. Likewise, we expect the biggest hit to euro area...

The recent recovery in industrial activity seems to have stalled, probably because of the collapse in external demand and high levels of vigilance inside China. Since the large-scale coronavirus infection was contained, the Chinese government has been trying hard to get the economy back on track. The end of the lockdown in Wuhan after two in a half months is an important milestone in that respect. But in the past couple of weeks, economic recovery has come up...

While expecting long-term yields to be capped, we remain neutral on US Treasuries. We think peripheral euro area bonds to avoid the levels of stress seen during the sovereign debt crisis. On 23 March, the Fed announced unlimited quantitative easing (QE), or “QE infinity”. Ramping up its purchases of Treasuries to a daily pace of USD75 bn, it currently owns 18% of all US Treasuries outstanding, but could easily own between 40%-50% by the end of the year. We remain...

. Euro-area growth has hit a slow patch. Following promising signs of having turned a corner, economic data released last week revealed that Q4 growth in the euro area reached its slowest pace since the European debt crisis. German growth was flat for Q4, in line with expectations. As far as Germany’s outlook goes, dark clouds have taken the form of an uncertain political environment and China’s recent weakness. We expect German politics to be even more...

Asset Allocation Our asset allocation is dominated by a wish to stay diversified in a fragile environment. Continued ‘noise’ around trade is likely to leave markets alternating between disappointment and hope. With this in mind, we have a neutral stance on government bonds and developed-market equities alike, although we still see select opportunities in equities and appreciate the protective function of safe-haven bonds. Geopolitical events such as the tensions...

We see the ECB remaining on hold throughout next year although we believe it could tweak some of the technical parameters of its toolkit. The first press conference of any new ECB President is an event in itself, and this time will be no different. Christine Lagarde’s debut  this week will understandably attract a lot of attention as the media and market participants scrutinise both form and substance. Indeed, the ECB’s ‘transition’ goes beyond the change in...

Whereas inflation is expected to be dormant next year, our expectation of real GDP growth of just 1.3% in the US in 2020 could put upward pressure on equity volatility. Since monetary policy tends to lead volatility by two and a half years, the Fed’s turn toward quantitative tightening in 2017 is also continuing to exert upward pressure on volatility levels for now. But there are also countervailing forces at work. Although there is not a perfect correlation,...

Neutral US Treasuries. We expect the US 10-year yield to fall towards 1.3% in H1 as US growth falters and the US Federal Reserve starts signalling additional rate cuts. However, continued monetary easing and election promises (i.e. fiscal stimulus) could boost inflation expectations in H2, with the 10-year yield ending 2020 at around 1.6% in our central scenario. Overall, we expect a positive single-digit total return for 10-year Treasuries next year and a steepening...