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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. 

 

Risk literacy and choices – stubbing toes in the dark

In the midst of uncertainty, risk literacy can help us make the right decisions in an informed way. Risk literacy is the ability to perceive risks and the aptitude to make appropriate decisions after becoming aware of these risks. To measure risk literacy during the Covid-19 crisis, we asked almost 7,000 people in seven countries questions related to numeracy and risk literacy, as well as about the impact of the pandemic on their finances. 

 

Digital-enabling countries proved more resilient to the Covid-19 economic shock

The higher the digitization of your country or company, the higher the resilience of this country or company in a context of Covid-19. The Euler Hermes Enabling Digitalization Index (EDI) measures the ability – and agility – of countries to help digital companies thrive and traditional businesses harness the digital dividend. 

 

Italy: Draghinomics FAQs

As Italy’s next Prime Minister, former ECB President Mario Draghi starts with a double economic burden: weak growth momentum and a vaccination delay that could cost EUR10bn (0.6% of GDP). 

 

Is the Chinese Ox reflating the world, one container at a time?

Amid surging demand for imports from China, a container shortage and a strengthening RMB are pushing up import prices for European firms: We expect a peak of +6% y/y by end-April 2021 from +3% in November 2020. For the US, the impact should be milder: +2% y/y by July from -1% in November.

 

China: Riding the silicon ox?

The recent shortages of chips used in the automotive industry highlight the growing ubiquity and critical nature of semiconductors, which are the essential components that power the USD3,000bn IT industry.