I. What are markets discounting? (pp. 5-9)
•Using a nowcasting approach we examine how soon a recovery needs to be visible in the data in order to meet market expectations. Quite quickly, is the answer.
II. What are markets not discounting ? (pp. 8-12).
•Credit, consumer demand, and deflationary pressures will constitute headwinds to the expected V-shaped recovery. Equity prices leave little room for such second-round effects. Dispersion between sectors has reached a minimum. What are the implications?
III. Hedge Assets Suspended (pp. 13-15)
•Which hedge assets have worked in the current crisis? The answer is that the list has been reduced considerably, leaving portfolios with less protection for risk assets.
VI. Our Asset Allocation
We maintain the same overall defensive positioning in risk assets from last month. Our top-down climate indicator is still very negative.
In our hedge portfolio, we overweight short duration EZ gov. bonds and hold IG bonds as an underweight.
We have reduced our exposure to USD bonds.
In our Risk portfolio we stay underweight in European, EM and JP equities while holding High Risk credits and US equities in Neutral positions.