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China´s policy mix: "Proactive" and "prudent" in name, tightening in practice

With policymakers’ focus coming back to financial stability, Chinese stimulus will not be saving the global economy this time round. But expect monetary tightening through liquidity and regulation, rather than policy rate hikes, in 2021. 

Show me the money: Debunking a couple of myths about excess liquidity

The reflation trade that has engulfed capital markets is largely based on the idea that a lot of money has been, is and will be created in response to the Covid-19 pandemic.

The irony of Biden´s super stimulus: USD360bn for exporters around the world

The USD1.9tn stimulus in the US will lead to an additional rise in imports of goods and services of USD360bn over 2021-2022. 

Commodities: Higher demand, supply bottlenecks, but no speculation (yet)

With oil leading the recent surge, some commodities are at multi-year record highs, in line with anticipated pent-up demand. Since the lows of May 2020, corn, soybeans and copper are at seven to eight-year highs, while cotton is trading at a three-year high.

U.S. Yield Curve: Let´s twist again?

Bond vigilantes are testing the Fed on tapering. Against the backdrop of growing confidence in the global recovery and rising inflationary pressures, yields on 10-year US Treasuries have risen 60bp since the beginning of the year to 1.4%. 

Tourism: Europe will be at the frontline of the recovery, but only in 2024

As governments race to contain new and more contagious variants of Covid-19, ‘travel passes’ or ‘vaccine passports’ won’t be enough to revive tourism: the industry could only see a recovery in 2024. To determine the pace of recovery after the Covid-19 shock, we look at how long it could take countries to achieve herd immunity and at lessons from past economic slumps. 

The not so merry adventures of the Robin Hood generation in financial markets

The recent US equity market rally, which saw some stock prices multiplied by 10x to 15x within a week, highlights the rise of a new kind of “all-in” retail investor, one that is ramping up leveraged trading through the derivatives market, primarily via call options. 

Covid-19 one year on: 1.8 million additional long-term unemployed in Europe

As the one-year anniversary of lockdowns across Europe draws near, the narrative around Eurozone labor markets’ perceived resilience is deceiving. Employment-retention schemes propped up more than 25 million workers in the big four Eurozone economies alone in the immediate aftermath of the Covid-19 shock. On the flipside, however, 13.7 million unemployed workers have to a large degree been frozen out of employment. Given the at best gradual defrosting of Eurozone labor markets over the coming year, coupled with the prospects of a jobless recovery, we see a heightened risk that the cyclical labor market shock turns structural, with unemployment stabilizing at an elevated level.

European corporates: (Active) cash is king

European non-financial corporates have seized the opportunity of state-guaranteed loans to build up cash reserves, especially in France, the UK and Italy. Overall, the build-up of cash reserves is positive as it provides buffers for future debt redemptions even if this is not a short-term concern anymore.

QE and the bull market in everything but diversification

The volatility of major asset classes often makes headlines at the risk of overlooking another source of risk: changing patterns in correlations between market segments.

Focusing instead on co-movements between key asset classes:

• Stressing the importance of correlations as a source of risk in a representative portfolio
• Observing that correlations are volatile and tend to magnify the volatility of capital markets during periods of stress
• Seeing in the correlations spikes experienced in 2008 and again in 2020 the footprint of quantitative easing (QE)
• Submitting that one unintended consequence of QE is to curtail diversification opportunities.