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2020/04/01 / Erste Group Research

Global Strategy Q2 2020

For the time being, the corona pandemic has largely led to a standstill of economic activity. We expect recessions in the US and Europe as well as rising unemployment rates. Governments and central banks have taken comprehensive measures in order to limit the damage. In this environment safe haven assets are likely to hold up better. In the risk asset segment one can gradually build up positions in selected high quality securities. Financial market volatility is likely to remain high in Q2.

Economy: The corona pandemic represents an entirely new challenge. While it is of the utmost importance to protect people's health in the best possible way, comprehensive measures aimed at containing the spread of the virus result in pronounced adverse effects on the economy and job losses. We expect a significant economic slump in the US in Q2 and a -0.8% contraction in GDP this year. The extent of the recession will depend on how quickly the containment of COVID-19 and the gradual resumption of economic activity can be achieved. In the euro zone, where containment measures have already been in place longer than in the US, we expect a significant economic downturn in the first half of the year, followed by a gradual recovery in the second half. For 2020 as a whole, we expect a contraction of GDP by -3.5%. The US and euro zone member countries have passed large fiscal stimulus packages in the amount of roughly 10% of GDP in order to limit the damage.

Bonds: Central banks have also responded with comprehensive support measures and are trying to ensure the provision of sufficient funding at favorable terms to companies and households with all means at their disposal. While the ECB has decided to launch additional asset purchase programs and to provide liquidity to the banking sector while easing regulatory requirements, the Fed is not only flooding money and capital markets with liquidity, but has also cut the federal funds rate rapidly by 150 basis points to 0-0.25%. All central banks will adjust their measures appropriately if it should become necessary. Yields on both German Bunds and US treasuries should remain at very low levels for the time being. In light of elevated volatility in corporate bond markets, we recommend the gradual build-up of positions in “BB”-rated and IG hybrid bonds, preferably broadly diversified via investment funds.

Currencies: The prevailing uncertainty has led to high volatility in the US dollar and an appreciation of the Swiss franc against the euro. Only once a gradual normalization of the economic situation becomes evident do we expect both currencies to weaken. The gold price is benefiting from elevated financial market volatility and low interest rates. We expect the gold price to trade in a range from USD 1,580 – 1,680 in the second quarter.

Stocks: High stock market volatility should continue at the beginning of the second quarter. Thereafter we expect an uptrend in global stock market indexes to gradually resume – provided that progress in the effort to contain the coronavirus in the US becomes evident. Non-cyclical sectors are likely to post a moderately positive performance. The current environment argues against investments in cyclical sectors.

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General information

AuthorErste Group Research
Product nameGlobal Strategy
Topic in focusCredits/ Corporate bonds, FX, Macro/ Fixed income
Economy in focusAustria, Croatia, Czech Republic, Eurozone, Germany, Hungary, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Switzerland, Turkey, United States
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar, Swiss Franc, Turkish Lira, US Dollar
Sector in focus-


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