Back to normal…

As the world gradually returns to normal, governments and central banks are spending to preserve and help the economy to recover rapidly. The latest news are good for the markets. Monthly statistics were expected to reach historical levels since they benefit from a strong base effect. Thus, US retail sales have been released at +17.7%, figure not seen since 1992.

Once again, the strongest measure comes from the FED, which announced Tuesday its new weapon to support the job market: the Secondary Market Corporate Credit Facility (SMCCF). The plan authorizes the purchase of High Yield bonds rated up to BB- for securities which were Investment Grade before the Covid19 crisis. The portfolio purchased with this facility is intended to promote liquidity and increase the availability of credit. This plan focuses particularly on companies with a large number of employees to avoid redundancy plans. To top it off, the US Congress is considering a new $1000 billion plan to support the economy.

In the wake of these good news, markets remain bullish. The S&P500 index has returned to its price level of early 2020. On the interest front, both the 10-year Bund and the 10-year Treasury remain relatively stable at respectively -0.4% and 0.7%.

While monitoring some risks, the Covid19 seems to make a comeback in the form of small clusters in Beijing, Germany and Montenegro. However, the management of new cases seems appropriate and the risk of a second wave seems to be under control. Moreover, the majority of countries are now equipped (tests, masks…) to cope with a possible epidemic revival. We believe that media is currently overreacting generating unnecessary noise.

In Asia, we closely monitor the evolution of tensions in the Ladakh between China and India. We will also be vigilant about the advance of North Korean troops into the demilitarized zone that separates it from South Korea.

In this context, we maintain our cautious stance and favor a diversified investment strategy as recommended in our “Monthly CIO Views” document. In the long term, we believe that the Covid-19 crisis will accelerate society changes which increases our convictions for sectors such as healthcare and technology. Finally, we reiterate our true affection for Gold. We expect the yellow metal to reach new historical highs in the months to come.

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