Macro Presentation : Looking beyond the storm
Head of Macroeconomic Research
Summary: This is my first macro presentation to clients since the coronavirus outbreak. I think it provides a clear assessment of what have been successfully done by policymakers since early March, what are the challenges lying ahead, and how should investors proceed in this very unusual bear market rally.
If you want, you can also skip the slides and go directly to the conclusion:
We are facing an unprecedented crisis: Almost 100% of businesses are affected the COVID-19 outbreak vs 60% in a « normal » recession.
Our baseline macroeconomic scenario is that we have entered into the worst recession since 1929 that will be followed by a U-shaped recovery. However, there are many downside risks to growth to keep in mind: weak global aggregate demand due to the hysteresis effect, tourism will not get back to normal before 2021-22 (it represents more than 15% of direct GDP contribution in Spain, Portugal and Greece), the risk of solvency is increasing fast in the service sector paving the way to a wave of bankruptcies.
Policymakers will implement new policy innovations to mitigate social discontent (UBI), deal with the increase in debt (MMT, monetization and YCC – Yield Curve Control to limit the appreciation in interest rates) and will also resort to old tools (such as higher taxation).
We are at the beginning of a regime shift back towards the 1950s characterized by “big government” and ultra-loose monetary policy (“lean against the wind” monetary policy). Higher inflation is becoming a real long-term risk that could be amplified by de-globalisation forces, debt monetization and the redirection of value chains.
Governments will stop using nominal GDP and will refer to well-being indicators.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.