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Chief Economist's Comment - 05 Apr 2020    

Sunday Wrap

  • Our guestimate of how bad it’ll get, the impact on debt – and why the fiscal authorities should do still more.
  • Ironically, in the middle of all the pain, there is one group of society now benefitting from a massive windfall, namely consumers of oil. I’ll summarize why – and how – that gain ought to...
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  • Our guestimate of how bad it’ll get, the impact on debt – and why the fiscal authorities should do still more.
  • Ironically, in the middle of all the pain, there is one group of society now benefitting from a massive windfall, namely consumers of oil. I’ll summarize why – and how – that gain ought to be redistributed to more deserving groups.
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Sunday Wrap: Kurzzusammenfassung

Publikation nur auf Englisch verfügbar

  • Unsere Daumenschätzung, wie schlimm die Lage werden wird, welche Auswirkungen sich für die Verschuldung ergeben – und warum die Fiskalbehörden noch mehr als bisher tun sollten.
  • Ironischerweise gibt es inmitten all dieses Leids eine Gruppe in der Gesellschaft, der...
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Publikation nur auf Englisch verfügbar

  • Unsere Daumenschätzung, wie schlimm die Lage werden wird, welche Auswirkungen sich für die Verschuldung ergeben – und warum die Fiskalbehörden noch mehr als bisher tun sollten.
  • Ironischerweise gibt es inmitten all dieses Leids eine Gruppe in der Gesellschaft, der jetzt ein massiver Windfall-Profit zufällt, nämlich Ölkonsumenten. Ich werde zusammenfassen, warum – und wie – dieser unverhoffte Gewinn an förderungswürdigere Gruppen umverteilt werden sollte.
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Sunday Wrap: Breve riassunto

Pubblicazione disponibile solo in inglese

  • Quanto sarà grave l’impatto sul debito, secondo noi, e perché i governi dovrebbero fare ancora di più.
  • Ironicamente, nel mezzo del disastro, c’è un segmento della società che beneficia di un’importante ricaduta, i consumatori di petrolio. Spiegherò perché e in...
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Pubblicazione disponibile solo in inglese

  • Quanto sarà grave l’impatto sul debito, secondo noi, e perché i governi dovrebbero fare ancora di più.
  • Ironicamente, nel mezzo del disastro, c’è un segmento della società che beneficia di un’importante ricaduta, i consumatori di petrolio. Spiegherò perché e in che modo quel guadagno dovrebbe essere ridistribuito tra gruppi più meritevoli.
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- 21 Nov 2019  

2020-21 Outlook: Late-cycle blues

  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB...
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  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB is expected to stand pat and focus on its policy review. Economic growth in the CEE region will likely slow as a result of external headwinds.
  • FI: Government bonds should remain supported throughout 2020. We expect 10Y US yields to fall to 1.50%, with the curve bull-steepening. Room for lower Bund yields is more limited as the bar for further ECB rate cuts is high and the Bund curve is quite flat. The 10Y yield will likely hit -0.50% at end-2020.
  • FX: Narrower growth and rate differentials between the US and the eurozone offer EUR-USD some upside potential. We expect the GBP to recover but this will likely be slowed by BoE easing and the risk of a Brexit-related “cliff edge” in December 2020.
  • Equities: We anticipate strong corrections of up to 20% in global equities in 1H20, with some relief by year-end. 2020 will be dominated by low earnings growth in Europe and slowing earnings growth in the US. We think present consensus estimates are too high.
  • Credit: The late-stage credit cycle warrants defensive positioning in European IG and HY credit, with a preference for non-cyclical sectors. Technical factors such as the CSPP should support credit, though this will likely be balanced by a deterioration in credit fundamentals and the gap to valuations will widen further.
  • CEEMEA: EM hard-currency credit is set to post a good, mostly carry-related performance in 2020 of more than 5%. Our preference remains BBB and BB rated credit.
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Late-cycle blues (German version)

* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der...

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* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der Eurozone. Die Fed wird ihre Zinsen voraussichtlich um 100 Bp. senken, während die EZB ihre Geldpolitik vermutlich stabil halten und sich auf die Überprüfung ihrer geldpolitischen Strategie konzentrieren wird. Das Wirtschaftswachstum in der CEE-Region dürfte sich aufgrund externer Gegenwinde verlangsamen.

* FI: Staatsanleihen sollten während des gesamten Jahres 2020 gut unterstützt bleiben. Wir erwarten einen Rückgang der 10J UST Rendite auf 1,50%, wobei sich die Kurve versteilern dürfte. Der Spielraum für niedrigere Bundrenditen ist geringer, da die Messlatte für weitere Zinssenkungen der EZB hoch und die Bundkurve recht flach ist. Die 10J Rendite wird Ende 2020 voraussichtlich -0,50% erreichen.

* FX: Engere Wachstums- und Renditeunterschiede zwischen den USA und der Eurozone bieten EUR-USD ein gewisses Aufwärtspotenzial. Wir gehen von einer Erholung bei GBP aus, aber dies wird wahrscheinlich durch die Zinssenkungen der BoE und das Risiko eines Brexits ohne Abkommen im Dezember 2020 gebremst.

* Equities: Wir erwarten starke Korrekturen von bis zu 20% in den globalen Aktien im 1H20, mit einer gewissen Entlastung bis zum Jahresende. Das Jahr 2020 wird von einem niedrigen Gewinnwachstum in Europa und einem sich verlangsamenden Gewinnwachstum in den USA geprägt sein. Wir halten die derzeitigen Konsensschätzungen für zu hoch.

* Credit: Die Spätphase im Kreditzyklus rechtfertigt eine defensive Positionierung im europäischen Investment-Grade- und High-Yield-Anleihenbereich, mit einer Präferenz für nicht-zyklische Sektoren. Technische Faktoren, wie das CSPP, sollten Unternehmensanleihen unterstützen, obwohl dies wahrscheinlich durch eine Verschlechterung der Fundamentaldaten ausgeglichen wird, wobei sich der Abstand zu den Bewertungen weiter vergrößern sollte.

* CEEMEA:Schwellenländeranleihen mit einer stabilen Währung werden im Jahr 2020 eine gute Performance von mehr als 5% aufweisen. Wir bevorzugen weiterhin Anleihen mit einem BBB und BB Rating.

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The Unicredit Economics Chartbook - 02 Apr 2020

The mother of all recessions has arrived (2Q20)

Dear reader, welcome to this new issue of our Economics Chartbook where we present updated forecasts that take into account the huge damage to growth caused by the spread of COVID-19.

  • Global: Measures deemed necessary to contain the spread of COVID-19 have paralyzed the global economy. While China...
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Dear reader, welcome to this new issue of our Economics Chartbook where we present updated forecasts that take into account the huge damage to growth caused by the spread of COVID-19.

  • Global: Measures deemed necessary to contain the spread of COVID-19 have paralyzed the global economy. While China has now started to lift restrictions, in the rest of the world a flattening of the epidemic curve is still some weeks away. We expect the bulk of containment measures in the US and Europe to last through June. In this environment, uncertainty surrounding forecasts is huge. Nevertheless, today, we present our best guesses. We think that global GDP will shrink by about 6% this year, with a huge fall in 1H20 followed by a rebound in 2H20 and annual average growth of 8-9% in 2021. Impressive fiscal and monetary stimulus will not be able to prevent activity from slumping in the next few months but will be key to supporting the recovery once restrictions are eased. We suspect that the trough is likely to be much deeper – and the recovery swifter – than in the 2008-09 financial crisis. Risks are skewed to the downside, particularly with respect to the strength of the recovery. There is a risk of a second wave of infection, while business failures and much-higher unemployment may cause long-term damage to productive potential. However, concerns regarding public-debt sustainability are overblown.
  • US: The economy will likely shrink by 10-11% this year, with a 25% cumulated contraction in 1H20 as containment measures become more stringent in the coming weeks. The labor market is already under great pressure, and the unemployment rate will probably climb to more than 10% from its current 3.5%. We forecast a strong economic rebound in 2H20 and annual GDP growth of about 12% in 2021, supported by massive fiscal and monetary stimulus and high flexibility in the labor market. The projected recovery is likely to allow the US economy to reach its pre-crisis level of output by the end of 2021.
  • Eurozone: GDP might contract by about 13% in 2020, dragged down by a 25% drop in 1H20 that reflects the intensification of lockdown measures. Here, we also forecast a rebound in 2H20 and we expect average growth for 2021 to be about 10%. The policy response has been multifaceted. The ECB has stepped up interventions to preserve the functioning of key markets and safeguard the transmission of monetary policy amid a quickly deteriorating fiscal outlook. With its pandemic emergency purchase program, it stands ready to act as a buyer of last resort in the government-bond market for as long as needed. This backstop has created much-needed fiscal headroom. However, member states’ responses have been uncoordinated and have lacked a common approach. The eurozone’s north-south split has re-emerged, and financial solidarity is still elusive.
  • UK: GDP is likely to shrink by 10-11% this year, with a drop of more than 20% in 1H20 followed by a rebound in 2H20 and annual growth of about 10% in 2021. More uncertainty than usual surrounds our forecasts, and Brexit negotiations add to risks that loom over the expected recovery. However, we think that the UK will avoid a fallback to WTO rules.
  • China: The economy will probably expand by less than 1% in 2020, with a sharp contraction in 1Q20 (by 7-8% qoq, or an annualized 30%) followed by rapid recovery in 2Q20 and 3Q20. Activity was extremely weak in February, and while some improvement has materialized since then, the economy still seems to be running at 85-90% capacity. In 2021, GDP growth is likely to rebound to about 10%. Additional cuts to both the reserve requirement ratio and the loan prime rate are in the cards, as is the injection of more liquidity for SMEs, with a focus on export-oriented firms. On the investment front, digital-infrastructure projects are likely to take priority over traditional ones.
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CEE Quarterly - 04 Feb 2020

CEE: Ein Outperformer in herausfordernden Zeiten (1Q20)

Übersetzung der englischen Originalversion vom 13. Januar 2020

  • Das Jahr 2020 könnte sich aufgrund des schwachen Welthandels, einer wahrscheinlichen Verlangsamung in den USA, der verschärften finanziellen Bedingungen in den Schwellenländern und der Auswirkungen, die diese Faktoren auf die Politik und...
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Übersetzung der englischen Originalversion vom 13. Januar 2020

  • Das Jahr 2020 könnte sich aufgrund des schwachen Welthandels, einer wahrscheinlichen Verlangsamung in den USA, der verschärften finanziellen Bedingungen in den Schwellenländern und der Auswirkungen, die diese Faktoren auf die Politik und die makroökonomischen Ungleichgewichte haben könnten, als ein schwieriges Jahr für die Schwellenländer erweisen. Eine Erholung ist für 2021 absehbar.
  • Die CEE-Länder könnten erneut Outperformer unter den Schwellenländern sein, da die Abhängigkeit von ausländischem Kapital und der US-Nachfrage geringer ist., die Wirtschaftspolitik sich verbessert hat und die Verankerung in der EU gegeben ist.
  • In den EU-CEE-Ländern1 erwarten wir eine Verlangsamung des Wirtschaftswachstums auf 2,5% im Jahr 2020 gegenüber 3,6% im Jahr 2019, das durch den schwächeren Welthandel und einen zyklischen Abschwung in den USA ausgelöst wird. Das Wirtschaftswachstum könnte sich auf 2,8% im Jahr 2021 erholen, wenn sich der Welthandel wieder erholt.
  • Das Wachstum auf dem Westbalkan wird den gleichen Verlauf nehmen wie in den EU-CEE-Ländern. Wir erwarten Zinssenkungen in Tschechien und Serbien und unveränderte Leitzinsen in allen anderen EU-CEE-Ländern.
  • Das Wachstum in der Türkei dürfte sich allmählich auf etwa 2% im Jahr 2020 und 3% im Jahr 2021 beschleunigen, aber in beiden Jahren unter dem Potenzial bleiben. Die CBRT könnte ihren Leitzinssatz auf 10% oder noch weiter senken und den Realzins nahe Null halten.
  • In Russland wird das Wirtschaftswachstum in den Jahren 2019-20 vermutlich unter 1,5% bleiben, wenn die Investitionen im Rahmen des nationalen Infrastrukturprogramms nicht anlaufen. Wir gehen davon aus, dass die CBR den Leitzinssatz bis 2020 auf 5,75% oder weniger senken wird, da die Inflation unter dem Ziel von 4% bleibt.
  • Die wichtigsten politischen Risiken werden eine geringere Zuteilung von EU-Mitteln an Mitteleuropa, ein Scheitern der europäischen Integration auf dem Westbalkan und US-Sanktionen gegen die Türkei und in geringerem Maße auch gegen Russland sein.
  • Wir heben vier Konvergenz-Trades hervor: Inflationsraten in den EU-CEE-Ländern und Zinsen und Inflation in der Türkei (1Q20), Zinsen in Tschechien und der Eurozone (ab 2Q20), EU-CEE EUR-Anleiherenditen und Bundesanleihen (während des gesamten Jahres 2020), russische Zinsen und Inflation (mittelfristig)

1) EU-CEE-Ländern umfassen: Bulgarien, Kroatien, Polen, Rumänien, Slowakei, Slowenien, Tschechien und Ungarn - alle CEE-Länder, die Mitglieder der EU sind.

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Rates Perspectives - 03 Mar 2020

10/30Y BTP spread: A steepener trade looks better than a flattener

  • The 10/30 BTP spread has flattened sizably since the beginning of February and currently trades at 95/96bp (on Bloomberg fair value, 103/104bp taking BTP Aug29 and Sep49), the lowest level since August 2019. * We present a fair value model for the 10/30Y BTP spread based on the BTP ?idiosyncratic?...
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  • The 10/30 BTP spread has flattened sizably since the beginning of February and currently trades at 95/96bp (on Bloomberg fair value, 103/104bp taking BTP Aug29 and Sep49), the lowest level since August 2019. * We present a fair value model for the 10/30Y BTP spread based on the BTP ?idiosyncratic? premium (as a proxy for the BTP credit spread), the level of rates and supply pressure at the extra-long end of the curve. * Our model, based on Bloomberg fair value, indicates that the 10/30Y spread should be more than 15bp steeper than where it is now.* Even with a larger BTP ?idiosyncratic? premium, a higher level of core rates and much lower supply pressure at the extra-long end compared to the start of this year, our model predicts virtually no flattening of the 10/30Y spread from current levels. Given that 10/30Y BTP flattener trades have a negative carry, we prefer to position for a steepener (with a slightly positive carry).* The key risk to this trade in the short-term is a prolonged risk-off market that continues to weigh on periphery and especially BTPs, or a scenario where idiosyncratic risk in Italy increases.
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Chart of the Week - 07 Apr 2020

Working remotely: How feasible?

  • Amid social distancing to contain the spread of COVID-19, for many firms remote working is the only way to keep their businesses going during the lockdown, thus mitigating the impact of the unprecedented recession that is in the making. Our Chart of the Week shows the estimated share of work that...
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  • Amid social distancing to contain the spread of COVID-19, for many firms remote working is the only way to keep their businesses going during the lockdown, thus mitigating the impact of the unprecedented recession that is in the making. Our Chart of the Week shows the estimated share of work that can be performed from home for five major European economies. It reflects the underlying features of jobs, regardless of whether the job was executed from home before the current health crisis broke out. For example, most jobs in finance, education and professional services can – at least in part – be executed remotely, but work in hotels, restaurants or in-store retail sales must largely be performed in-person.
  • The ranges provided in the chart are based on estimates of the feasibility of working from home for thousands of occupations in the US by University of Chicago economists Jonathan Dingel and Brent Neiman. We make the reasonable assumption that the share of work that can be done remotely for any given occupation is the same for these European countries as it is for the US. To estimate the whole-economy share of work that can be done from home, we applied the occupation-level estimates to the occupational-composition for each of the European economies displayed in the chart. The UK economy, which is skewed towards high-value-added services, stands out for having the most flexible job composition – almost 40% of work can be done from home. At the other end of the spectrum is Spain, where at most 35% of work can be performed remotely. Retail, transportation, tourism and restaurants roughly account for 24% of Spanish GDP, as opposed to an average of 19% for the eurozone as a whole. In between the Spanish and the UK economies are France, Germany and Italy – albeit the differences are rather small as we are considering high-income economies with fairly similar occupational structures. As a term of comparison, also in the US around 35% of work is suitable for flexible arrangements.
  • These estimates likely represent an upper bound for the percentage of output that could be produced from home, for a couple of reasons. First, feasibility does not imply unchanged productivity – in reality, occupations are made up of a number of tasks and some of them (even key ones) cannot easily be carried out from home. Second, the transition to remote work requires an important change of mindset across Europe, and this might not happen immediately, even if there is eagerness to do so and the digital infrastructure is in place to support such a shift (the five economies depicted in the chart have broadband coverage of above 95%). According to Eurostat, in 2017, just 5% of employees aged 15-64 took advantage of flexible working arrangements on a regular basis. On a positive note, the current crisis is forcing several firms to upgrade IT systems to allow employees to work from home and this might benefit productivity in the medium term.
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Economics Thinking - 08 Jan 2020

Spain vs. Italy: Dissecting the “structural” growth outperformance

  • Spain's new government looks too fragile to push for significant measures to boost the economy and will have to rely on the dividend of the post-crisis adjustment – due partly to the rebalancing of the economy, and partly to the structural reforms adopted since the 2010s.
  • In this note, we focus on...
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  • Spain's new government looks too fragile to push for significant measures to boost the economy and will have to rely on the dividend of the post-crisis adjustment – due partly to the rebalancing of the economy, and partly to the structural reforms adopted since the 2010s.
  • In this note, we focus on whether the reform efforts have managed to significantly improve the structure of the Spanish economy. In this respect, we build a scorecard of 36 variables that captures different determinants of total factor productivity, one of the main drivers of structural growth, comparing Spain and Italy.
  • We argue that some of Spain’s structural weaknesses remain unaddressed. Compared to Italy, Spain offers a more business-friendly environment, but it fares slightly worse when it comes to innovation. With respect to education, both countries need further reform.
  • Our conclusion is that Spain's economic expansion is set to cool over the medium term and that the current, significant growth differential between the two countries is likely to narrow.
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- 14 Feb 2020  

Shortened version of the Euro Credit Pilot (February 2020)

This is a shortened version of the Euro Credit Pilot, which we deem to be an acceptable minor non-monetary benefit under MiFID II.

  • Introduction: The outbreak of the coronavirus has already led to the disruption of global supply chains, with numerous producers across sectors reporting production halts...
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This is a shortened version of the Euro Credit Pilot, which we deem to be an acceptable minor non-monetary benefit under MiFID II.

  • Introduction: The outbreak of the coronavirus has already led to the disruption of global supply chains, with numerous producers across sectors reporting production halts at facilities in China. The related uncertainties warrant defensive positioning in European credit.
  • Macro Outlook: So far there is little data on the initial impact on the global economy, and comparisons with the SARS outbreak in 2002 are not straightforward. But 1Q growth-related data will be negative.
  • Micro Fundamentals: Sluggish earnings growth in Europe will negatively impact companies’ credit fundamentals.
  • Credit Quality Trend: The global economic outlook has become clouded, and the risk of economic slowdown in China due to the coronavirus has increased. Thus, the overall credit quality of European companies will likely decrease as indicated by the potential number of fallen angels.
  • Market Technicals: With the intensification of CSPP purchases, particularly in the primary market, the ECB is providing continuous support.
  • Valuation & Timing: We are keeping our end-2020 spread projections unchanged.
  • Sector Allocation & Recommendation Overview: Uncertainties related to the coronavirus and its ramifications for Chinese growth and the global supply chain warrant defensive positioning. In this context, we lower our recommendation on Automobiles & Parts to underweight from marketweight. We also lower our recommendation on Basic Resources to marketweight from overweight.
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Gekürzte Version des Euro Credit Pilot (Februar 2020)

Übersetzung der Originalversion vom 14. Februar 2020

Diese Publikation ist eine gekürzte Version unseres Euro Credit Pilot, die wir als annehmbare geringfügige nicht-monetäre Zuwendung gemäß MiFID II betrachten.

  • Einführung: Der Ausbruch des Coronavirus hat bereits zu einer Unterbrechung der globalen...
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Übersetzung der Originalversion vom 14. Februar 2020

Diese Publikation ist eine gekürzte Version unseres Euro Credit Pilot, die wir als annehmbare geringfügige nicht-monetäre Zuwendung gemäß MiFID II betrachten.

  • Einführung: Der Ausbruch des Coronavirus hat bereits zu einer Unterbrechung der globalen Lieferketten geführt, wobei zahlreiche Produzenten aus allen Sektoren von Produktionsstopps in chinesischen Anlagen berichten. Die damit verbundenen Unsicherheiten rechtfertigen eine defensive Positionierung im europäischen Kreditmarkt.
  • Makro-Outlook: Bislang gibt es nur wenige Daten über die ersten Auswirkungen auf die Weltwirtschaft, und Vergleiche mit dem SARS-Ausbruch im Jahr 2002 sind nicht ohne weiteres möglich. Aber die wachstumsbezogenen Daten für das 1. Quartal werden negativ sein.
  • Mikro-Grundlagen: Das schleppende Gewinnwachstum in Europa wird sich negativ auf die Kreditqualität der Unternehmen auswirken.
  • Entwicklung der Kreditqualität: Die globalen Wirtschaftsaussichten haben sich eingetrübt, und das Risiko einer wirtschaftlichen Verlangsamung in China aufgrund des Coronavirus hat sich erhöht. Somit wird die allgemeine Kreditqualität europäischer Unternehmen wahrscheinlich abnehmen, wie die potenzielle Zahl der „gefallenen Engel“ zeigt.
  • Markttechnische Fragen: Mit der Intensivierung der CSPP-Käufe, insbesondere auf dem Primärmarkt, leistet die EZB kontinuierliche Unterstützung.
  • Bewertung und Zeitplanung: Wir halten an unseren Spread-Prognosen per Ende 2020 fest.
  • Übersicht über die Sektorallokation und Empfehlungen: Die Unsicherheiten im Zusammenhang mit dem Coronavirus und seinen Auswirkungen auf das chinesische Wachstum und die globale Lieferkette rechtfertigen eine defensive Positionierung. In diesem Zusammenhang senken wir unsere Empfehlung zu Automobiles & Parts auf untergewichten von marktgewichten. Wir senken auch unsere Empfehlung für Basic-Resources auf marktgewichten von übergewichten.
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