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Should the €2,800 billion in sovereign bonds or the equivalent* that are on the European Central Bank’s balance sheet be treated just like any other bonds? This question, which has come up regularly over the past several months, is far from being of mere academic interest. In fact, it is symptomatic of a wish to forgive or even cancel a portion of the public debt being raised to cope with the Covid-19 crisis. But, rather than simply ignoring it, a more standard solution for the financial markets would be to regard such debt as virtual for the moment and to exclude it temporarily from public debt ratios.
Head of Investment Intelligence
Economists have frequently used the alphabet to characterize the profile of the recovery. But one letter does not fit all. It is the duration of the epidemic which will ultimately determine the shape of the recovery. The desynchronisation of cycles should open the door to traditional geographic diversification.
Didier BOROWSKI, Pierre BLANCHET
The duration of the epidemic will ultimately determine the shape of recovery. An uneven recovery and subdued inflation (barring any persistent supply shock) will call for a prolonged accommodative policy mix, in either monetary or fiscal policy. The merger of the two has to be careful monitored in emerging markets.
Head of Emerging Markets Macro & Strategy Research
Economic and corporate-profit recoveries continue along a gradual, upward-sloping catch-up process, where growth speed and composition will be key to landing in a “recovery financial regime” towards year’s end. Transition to the new financial regime will continue amid a sequel of relapses in the real economy, where policy boosters will prove critical, moving the needle between base and risk scenario. Over the next three to six months, while keeping the risk budget unchanged, progressively rotate risk from US HY into deep value/cyclical equities. Global IG remains supported by central banks’ purchasing programs and offer palatable yields. Lastly, expansive monetary policies and safe haven nature will support gold.
Monica DEFEND, Lorenzo PORTELLI