•An open-ended crisis should be responded to with open-ended measures. Fed and ECB policy meet this criterion. The shift of CBs from being pure liquidity providers to being credit providers is controversial. From a market perspective it’s a plus.
• The US stimulus deal is calibrated for the likely very sharp Q2 downturn (p.3). If the spread of the coronavirus were to peak over the next 1-2 months, a V-shaped recovery would become a possibility. But any hint at this in the virus data is still missing entirely.
• Wall Street dynamics still resemble the 1987 template too much (p.4). This makes it likely that the value-driven (p.5) market retracement in recent days will be short-lived, and that more consolidation will be required for a sustainable market recovery.
• Based on relative scores in our DREX models, we now favor: 1. High Risk Credit (p.6) over equity in both the US, Europe and EM (Hard ccy) 2. DM equities (incl. Japan) over EM equities