24.06.2020 20

Thematics Views - July 2020

Published June 24, 2020

> 10 minutes

> 10 minutes

Tackle the EU fragmentation risks

Covid-19 is a symmetric shock with asymmetric outcomes. Existing imbalances within Europe such as public debt, economic models or vision for the union, turn to cracks and the EU is facing fragmentation risks. However, the EU should be able to get over it as it did with the Global Financial Crisis.

Brexit: don’t rule out a no-deal exit

The Brexit saga, somewhat overshadowed by the Covid-19 crisis, continues and could return to the spotlight this summer. While rounds of negotiations follow one another without concrete progress, the British refusal to extend the deadline raises the risk of an exit from the Single Market without an agreement
at the end of the year. The consequences for sterling and UK equities could be negative. However, it is likely that in the face of the risk of disrupting the economic recovery from the historic recession we are going through, pragmatism will prevail in the end.

BBB-BBs, best investment profile in credit

In an environment of low growth, low interest rates and rising default rates, investment grade and BB-rated issuers remain the ideal segment for investing. (1) The major central banks will support directly these issuers for an extended period through their asset purchase programmes. (2) Investor demand will remain strong, driven by a need for yield in a low interest rate environment. (3) The probability of default of these issuers remains very low.

U.S. Housing Outlook - Why We Don’t Expect a Collapse in Home Prices

With median incomes expected to decline, we expect modest declines in home prices in 2020. The base case scenario for home prices has deteriorated. Of greater importance, in our view, is that the stress scenario of substantial home price declines remains remote. A retrospective analysis of the 2008 Global
Financial Crisis suggests that home prices are unlikely to decline substantially, because the conditions that led to the crisis were unique and in most cases the opposite of the current environment.


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