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Markets scenarios & risks - April 2020


Central & Alternative scenarios

Top Risks

Global Research Clips

Amundi Asset Class Views


April 2020


Avril 2020




Market scenarios & risk - anchor

Monthly update

Covid-19 progressively moving global in March was a game changer for the global economy and financial markets. As policies responses to contain the damages of the virus became bolder, we re-assessed the narrative of our base and alternative scenarios. We changed the probability in favour of the upsides scenario to 30% from 15%, while the downside scenario moved from a probability of 30% down to 20% and the central scenario from a probability of 55% to 50%.


Where do we stand on Covid-19

“There are decades where nothing happens; and there are weeks where decades happen”.

The Covid-19 outbreak has turned global, extending from Asia to Europe and the United States. The number of cases continues to increase, and health policies designed to contain and manage the crisis are under deep stress. Policies turned bolder during the course of March.
Containment measures were rolled out with different strengths and timing with social distancing, national lockdowns and increased supply chain disruptions, which weigh on both demand and supply. Preserving social and economic stability has become a focus of policy makers. Healthcare and economic policies to safeguard lives and livelihood and contain the economic fallout have been put through.
Financial markets’ reaction has been brutally volatile on mounting uncertainty regarding the safeguarding of lives, livelihood and businesses. Central banks have anchored market participants’ expectations on liquidity, on the short-end of the credit curve (in the US in particular) and on sovereign yields with the ECB capping the spread between Bund yields and peripherals. A “whatever it takes” attitude is in place to contain the risk that financial damage will spill over into the real economy and that the depth and duration of the disruption will be too great to bear.



Monthly update

Risks are clustered to ease the detection of hedging strategies but they are obviously linked. In March, we have seen a prominent increase of the economic risk. These days challenge is to detect the shape of Covid-19’s economic impact while central banks’ “bazookas” tempered the financial risk anchoring expectations on liquidity and sovereign spreads. Geopolitical risk remains elevated but likely to roll out a broader horizon






  • Scenarios

The probabilities reflect the likelihood of financial regimes (central, downside and upside scenario) which are conditioned and defined by our macro-financial forecasts. We use the k-means clustering algorithm to our enlarged macroeconomic dataset, splitting the observations into the K cluster, where K represents most of the variability in the dataset. Observations belong to one cluster or another based on their similarities. The grouping of the observations into the k clusters is obtained by minimizing the sum of squared Euclidean distances between observations and clusters centroids i.e. the reference values for each cluster. The greater the distance, the lower the probability to belong to a given regime. The GIC qualitative overlay is finally applied.

  • Risks

The probabilities of risks are the outcome of an internal survey. Risks to monitor are clustered in three categories: Economic, Financial and (Geo)politics. While the three categories are interconnected, they have specific epicentres related to their three drivers. The weights (percentages) are the composition of highest impact scenarios derived by the quarterly survey run on the investment floor.


global research clips


1. A global deep recession in Q1-Q2-Q3 2020. The recovery in Asia, followed by Europe and then the US will be a game changer, setting the reversal path.

The timeframe of the shock has been extended (with an overall peak expected by May or June). The geographical impact has also been extended globally from an external shock on the trade dynamics sourced in China to an endogenous shock of collapsing demand in most countries experiencing shutdowns. With the exception of a few countries (such as China and South Korea), no peak in the outbreak is yet visible. We are therefore adjusting our central scenario recovery profile to an extended U shape.

2. Central banks are addressing liquidity risks

Central banks are stepping up to address liquidity issues, recalibrating sovereign risks and broadly anchoring yields; we expect them to succeed, limiting the spillover from the financial markets into the real economy via the credit sector. However, we are aware that central banks have limited firepower on the solvency front. This will be within the perimeter of economic policies.

3. Governments are safeguarding lives and household incomes

Governments will have to target social stability, safeguarding lives first, and then maintaining incomes and minimizing the long-term costs of collapsing business to prepare the real economy for what will come thereafter. While in the US co-operation between the Treasury and the Fed is already settled, in the Eurozone, we are at the early stages of a more powerful common fiscal answer and co-ordination with monetary policy.

4. Oil prices should stay low throughout the year

The oil price collapse has been triggered by a vicious supply-and-demand dynamic. The Covid-19 pandemic and globally spreading lockdowns have slashed demand expectations, and the Saudis’ sudden decision to increase production by 3mln bbd. moved oil markets into deep oil oversupply territory. For this reason, the reasonable range for oil becomes $25-35, with a down pressure to $20, should the global technical recession deepen further in 2H20.

Stimulus packages

USA: A $2.2 trillion Covid-19 stimulus package. The plan is designed to protect the US economy against the extreme shock it is going through. The largest economic-relief plan in history (10% of GDP) will provide broad support to all segments of the economy, including self-employed and independent workers hit by the disease’s economic fallout. The main items of this gigantic Emergency Aid Bill include a direct payment of $1,200 per adult and $500 per child (conditional on income) for a total of $290bn. Moreover, aid to the unemployed is being extended by $260bn. $510bn is being granted in the form of loans and guarantees, of which $454bn to support the Fed’s lending programs and the rest for hard-hit sectors (incl. airlines, that will also receive grants). There will also be $377bn in loans, guarantees and grants to small business. Finally, state and local governments will be allocated $150bn, while $180bn will go to hospitals and other health spending. The rest of the package will be mostly tax provisions for business and funding other benefits.

EU: Significant support from governments and the ECB. The European Council has confirmed the suspension of budget rules and allowed member states to ease corporate state aid restrictions. A €37bn initial aid plan (mostly a reuse of cohesion policy funds) was agreed before national plans could be launched. The Eurogroup decided to activate the ESM for amounts in the range of 2% of GDP although further decisions are needed before it takes effect. At the country level, significant measures have been announced, for instance €45bn in France (2% of GDP) and €120bn in Germany (4% of GDP). Note that those amounts are not maximums as they will ultimately depend on the take-up rate of announced schemes, such as support to temporary unemployment. Large-scale public guarantees of corporate loans have also been announced, including €300bn in France and a total of more than €800bn in Germany (whose government communicated on ‘unlimited’ guarantees). Germany is also setting-up a €100bn fund for public capital injection in corporations.

UK: Three packages have already been passed, with the main measures being support to the NHS and medical research, support to temporary unemployment (with 3 month scheme to pay 80% of wages up to 2500 per month) and additional scheme to support the self-employed and temporary workers. These measures will add at least GBP42bn to the British budget this year. The government also offered an indicative GBP330bn of guarantees to corporate loans.

Japan: Two packages totaling $9.6bn have already been announced in February and March. They included cheap loans to support hard-hit small and mid-size companies (first in tourism activities, then in other sectors) as well as help for working parents and other social aid. Japan is currently preparing a much bigger package (up to $515bn, or 10% of GDP) that should include direct payments to households and loan guarantees. Part of the funds would be drawn from a previous stimulus package that was intended to minimize the damage from the US-China trade war.





Amundi Research
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Markets scenarios & risks - April 2020
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