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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.
Head of Developed Markets Strategy Research
The distribution of share of national income to labour versus capital has fallen to historically low levels in several advanced economies, such as the United States and the United Kingdom. Amundi believes that the Covid-19 crisis – together with other factors – will trigger a rebalancing in favour of labour over the next two decades.
On 23 February 2020, when Italy announced the Lombardy lockdown, and then on 11 March 2020, when the World Health Organization classified Covid-19 as a pandemic, what started as an emerging disease in China in a few weeks turned into one of the most serious health crises ever known. Equity markets across all financial centres plunged.
Jean-Jacques BARBERIS, Marie BRIERE, Simon JANIN
The share of national income that is distributed to labour vs. capital has fallen to historically low levels in several advanced economies, such as the United States and the United Kingdom. We believe the Covid-19 crisis, along with other factors, will trigger a rebalancing in favour of labour over the next two decades. A reversion to the long-term average ratio of labour and capital in the share of income would probably enhance social and political stability, and would better fit with a consumer-driven growth model.
Jean-Jacques BARBERIS, Pierre BLANCHET, Théophile POUGET-ABADIE
Today, investors have a unique opportunity to observe the spreading of a real virus alongside the viral nature of financial markets and the real economy. As Nobel Prizewinning economist Robert Shiller points out in his book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, “stories and images are created around new economic events”1. In some cases, these stories are memories of the past and their spreading can have major implications regarding economic and financial markets.
Group Chief Investment Officer
Crises create disruption and Covid-19 is no exception, bringing new complexities, new opportunities and new risks to the investment landscape. This tenth issue of the series "The Day After", Rethinking the macro and cross-asset research: what we have learned from the Covid-19 crisis is written by Monica Defend.
Global Head of Research