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1st March 2020

📉 The Black Swans Amass

MARKET CLOSE:
iTraxx Main

62.2bp, +5.2bp

iTraxx X-Over

302.5bp, +45bp

🇩🇪 10 Yr Bund

-0.60%, -5bp

iBoxx Corp IG

B+126bp, +11bp

iBoxx Corp HY

B+438bp, +40bp

🇺🇸 10 Yr US T-Bond

1.16%, -14bp

🇬🇧 FTSE 100

5563.74, (-5.25%)
🇩🇪 DAX

9815.97, (+1.90%)
🇺🇸 S&P 500

2626.65, (+1.89%)

As the fat lady sings…

The Dax -10.3%, FTSE -12.7%, S&P500 -8.5% and the Dow -11.2%. IG euro-denominated credit (iBoxx) total returns +0.8% (spreads +23bp), AT1 index -0.9% (+85bp), HY -1.8% (+90bp) and Eurozone rates +3.0%. All after the first two months of 2020.

Tempting as it might be, we won’t be bottom fishing yet. Keep portfolios in self-isolation.

Covid-19 will not react to lower interest rates, but interest rate cuts are coming as the standard policy response. Dare we think that the EU allows members some sort of fiscal profligacy as it thinks outside of the Maastricht strait-jacket policies?

We are staring into the abyss and we need some unorthodoxy. Whether it’s all over – ten years after the start of the financial crisis – is probably still open to question. The authorities’ ability to contain and control the outbreak and the longevity of it will determine the extent of the economic carnage.

Orthodox central bank action did a fantastic job in getting us this far during the last post financial crisis decade. And while more of it will come, it’s not going to save macro if the virus’ spread continues on this current savage trajectory.

The black swans are amassing on the horizon and we have our much-feared ‘cliff-risk’ event. Witness the weekend’s Chinese manufacturing PMI for February, crashing to well-below expectations, to just 35.7!

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