Credit takes centerstage. Mar 13, 2020

Credit takes centerstage. Mar 13, 2020

•Measures to contain the coronavirus in the US and Europe are still nowhere as drastic as the ones implemented in China. Markets remain unconvinced that this will suffice to contain the virus shortly.

•Uncoordinated policies across the board (intra-EU, US/EU) add to the sense of policy-ineffectiveness.

• A technical recession (drop in GDP in two succesive quarters) is already priced in. A full-blown credit crisis, prolonging the economic setback, is not. This could be the next shoe to drop, and focus returns to central banks, away from fiscal policy.

•The dynamics of the crisis still resemble the 1987 scenario more than both the bursting of the tech bubble and the GFC. Credit events could change that.

•The Corona-crisis has pushed our Risk portfolio into underweight against our Hedge portfolio. Absence of rebalancing implies that we are positioned for a U-shaped global recession.