/ Research Center

02.02.2021 - Monthly Cross Asset

New money and maybe new powers too: Central Bank Digital Currencies are coming

While it is still too early to see a full launch in a large country, the CBDC (Central Bank Digital Currency) theme is likely to grow in importance in 2021. Over the recent period, central banks have accelerated their studies and tests in this domain. As an instrument for helping economies adapt to digitalisation, CBDCs are also intended to bolster a state’s monetary sovereignty in the face of new challenges. However, their implementation raises complex issues, including those concerning their coexistence and interaction with bank deposits. While not yet viewed as serving a primary role as a new instrument of monetary policy, CBDC could nevertheless offer new possibilities in this area.

Tristan PERRIER

Global Views Analyst

02.02.2021 - Monthly Cross Asset

Why we don’t expect the Fed to taper its bond buying programme this year

In a world where sovereign bond yields are in the hand of central banks, the recent upward revisions of growth expectations for the US economy raised questions about the outlook for the Fed’s monetary policy. Growth is expected to rebound in H2 and very accommodative monetary policy is not a free lunch. The difficulty for the Fed is estimating how sustainable this expected improvement in growth and inflation will be in H2 2021. We expect the Fed to keep a cautious approach and we believe tapering is more likely in 2022 when the core PCE index will have made significant progress towards the objective of a sustainable increase to an average of 2% or higher.

Valentine AINOUZ, Delphine GEORGES

02.02.2021 - Monthly Cross Asset

Taper or not taper: a key issue for markets

The Fed is committed to maintaining very accommodative monetary conditions and unchanged interest rates until the economy has returned to full employment and inflation has stabilised above its 2.0% target. But the Fed has so far been vague on what determines the pace of its asset purchases. It is clear that these will have to decline long before it raises its key rates. But when and on what basis? Tapering has its risks but also its benefits. The challenge for the Fed will be to steer a gradual steepening as history shows that steepening episodes can be quite abrupt and generate volatility on markets.

Didier BOROWSKI, Pierre BLANCHET

15.12.2020 - Expert Talk

The day after #13 - How will Central Banks impact the equity markets in the post-Covid world?

Interest rates are at an all-time low, and even if inflation eventually picks up, it could take some time. Central banks, the first pillar of the investment cycle, are adjusting and are resolutely accompanying governments in this final battle against deflationary threats, at the risk of losing some of their independence. The resulting low level of real interest rates boosts risk premiums, supports equities over bonds, and leads to growth stocks being overvalued vs. value stocks. Reducing this excess will be achieved by a rebound in value stocks, which will notably benefit from the steepening of the yield curve in the recovery phase. However, as interest rates will remain low and disruption is now part of our daily reality, it is likely that growth stocks will eventually surprise upwards again in this cycle. Several risks could disrupt this optimistic reading of the impact of central banks on equities: central bankers’ willingness will be tested at the first signs of inflation. Their communication will have to be particularly pointed. A premature about-face on fiscal accommodation by some governments would also raise doubts in the markets. Finally, a failure of stimulus and reflationary policies remains possible; the low interest rate environment is part of the solution, but is also a symptom.

Eric MIJOT

Head of DM Strategy Research

01.12.2020 - Monthly Cross Asset

Heading into 2021, what do we think about credit markets?

We think that a combination of improving fundamentals and ongoing monetary stimulus will spreads pushed towards new record tight levels. We see also room for spread compression in high yield. Sustainably low financing costs make high debt levels much more manageable. Consequently, investors should now focus more on the ability of companies to generate profits rather than their level of debt.

Valentine AINOUZ, Mickael BELLAÏCHE

04.11.2020 - Monthly Cross Asset

Bonds that are not really binding

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.

Pierre BLANCHET

Head of Investment Intelligence

04.11.2020 - Monthly Cross Asset

Addressing the legacy of the crisis in the EM: the right policy mix in an uneven recovery

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.

Alessia BERARDI

Head of EM Macro and Strategy Research

02.10.2020 - Monthly Cross Asset

Contraction > recovery > late cycle: the cycle round trip is confirmed Advanced Investment Phazer: top-down assessment

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

02.10.2020 - Monthly Cross Asset

Fixed income dynamics in the current monetary and fiscal landscape

The global economy rebounded quickly during the summer from the coronavirus pandemic. In this phase of recovery, central banks played a key role in the massive supply of credit to governments and companies. To tackle the health crisis, almost all governments implemented large-scale fiscal stimulus and support measures, including corporate loan guarantees. At the same time, major central banks increased their purchases of sovereign debt to levels never seen before, played a backstop role in the corporate debt market and provided cheap liquidity to banks (in the case of the ECB). In a second phase, we expect government to implement stimulus measures. What will be the impact for the fixed income market?

Valentine AINOUZ, Delphine GEORGES

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New money and maybe new powers too: Central Bank Digital Currencies are coming

Why we don’t expect the Fed to taper its bond buying programme this year

Taper or not taper: a key issue for markets

The day after #13 - How will Central Banks impact the equity markets in the post-Covid world?

Heading into 2021, what do we think about credit markets?

Bonds that are not really binding

Addressing the legacy of the crisis in the EM: the right policy mix in an uneven recovery

Contraction > recovery > late cycle: the cycle round trip is confirmed Advanced Investment Phazer: top-down assessment

Fixed income dynamics in the current monetary and fiscal landscape

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