/ Research Center

17.01.2020 - Insights Paper

Economic resilience, Fed and elections to drive US markets in 2020

2019 proved a strong year for US assets, with US equity markets recording the strongest annual total return since 2013 and the US aggregate bond index up almost 9.0%. In addition, the past decade proved the best ever for the S&P 500 index, which returned 256% overall, well above its historical average.

Kenneth J. TAUBES, Christine TODD, Sergio BERTONCINI, Noah FUNDERBURK, Marco PIRONDINI, Eric MIJOT, Annalisa USARDI, Paresh UPADHYAYA

14.01.2020 - Thematic Paper

U.S. inflation… what’s up?

From the CPI data, in particular the HCPI, one would get the sense that inflation has decelerated and stabilised somewhat.

Annalisa USARDI

CFA, Senior Economist

06.12.2019 - Monthly Cross Asset

Corporate fundamentals are at the centre of the game

Over the last decade, easy financial conditions encouraged an increase in sovereign and corporate debt. Indeed, the leverage of American companies has reached record high levels and US corporate debt has been used for financial risk-taking to fund corporate payments to investors, as well as for mergers and acquisitions. At the opposite, the leverage of European companies has remained at low levels as European companies have remained more cautious over this cycle. In 2019, we have evolved in a new regime: the global economy has entered a synchronised slowdown and major central banks have returned to an easing stance. What are the risks for companies in this new context? We are following closely: The downgrade risk in the US Investment Grade universe. Net leverage for US issuers have resumed their upward trajectory in recent months. In 2020: (1) companies to make a trade-off between maintaining share buy backs and the stability or their debt (2) the downgrade risk to increase among firms facing increase pressure on profits. The default rate risk for low-quality high-yield bonds. Sluggish earning growth poses the biggest threat for companies to pay interest on their debt despite the low cost of financing. Indeed, at this stage of the cycle, we think that interest coverage is more closely related to earnings than to its interest expense: interest coverage could be quickly eroded by a hit to earnings. A selective approach is required in the low-rated Euro and US High Yield segments.

Valentine AINOUZ

Fixed Income and Credit Strategist

12.11.2019 - Investment Talks

Renewed expansion of Fed balance sheet will not be QE but will affect markets

On 30 October the Federal Reserve cut the federal funds rate for the third time this year, while hinting at a pause over the next few months. The rate cut followed the Fed’s announcement on 11 October that it will address a liquidity shortage causing volatility in the overnight loan market by buying $60 billion per month in Treasury bills until Q2 2020 and support overnight repo operations through January 2020.

Paresh UPADHYAYA, Christine TODD

29.10.2019 - Discussion Paper

Buybacks – A multi-perspective review and thoughts on best practices for company buyback policies

US share buybacks are near record levels in absolute dollar terms and incrementally the discussion has shifted from academic finance journals to political stump speeches.

Ibra WANE, Craig STERLING

14.10.2019 - Expert Talk

The Elizabeth Warren moment

E. Warren is now neck-and-neck with J. Biden (27%) in the Democratic primary pollsand far ahead of B. Sanders (15%).From her fifth-place position just six months ago, she has risen 21 points in the polls since then, while Biden has lost four points and Sanders, six. Bookmakers now put herodds of winning the nomination at more than 50%, vs. less than 20% for Biden and 6% for Sanders.

Ibra WANE

Equity Strategy

11.10.2019 - Investment Talks

Trump impeachment is likely, but impact on financial markets would be short-lived

The Democratic Party has announced the opening of an impeachment inquiry against President Donald Trump following revelations that he pushed Ukrainian President Volodymyr Zelenskiy to investigate the son of Democratic opponent Joe Biden. The impeachment process is long and articulated. An 80% probability that Trump will be impeached, followed by acquittal in the Senate, which would keep him in office for the remainder of his term, is our base case scenario.

Paresh UPADHYAYA, Marco PIRONDINI, Christine TODD

24.09.2019 - Investment Talks

The Fed cuts rate, but the market expects more

The Fed cut rates, but the market expects more: As expected the Federal Reserve lowered its target range for the Federal Funds rate by 25 basis, and now the market anticipates as many as three more cuts by the end of 2020. We think that is too much. In our view, the Fed is likely to pause to monitor the effects of the rate cuts on the economy, before acting again.

Christine TODD, Timothy ROWE, Jon DUENSING

12.09.2019 - Monthly Cross Asset

Trade war escalation and impact on world trade and economic growth

Trade tensions re-escalated during the summer. Starting on 1 September, the US Administration introduced new tariffs and China retaliated simultaneously. More tariffs are likely from the US side, including an increase in tariffs already in place from 25% to 30% and new tariffs on the last tranche of imported goods from China.

Alessia BERARDI

Deputy Head of Macroeconomic Research

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