Ten Capital Markets Propositions for 2020

(As at 2. December 2019)

1.Geopolitics and monetary policies still important, but the economy drives the prices

  • Geopolitical risks like the trade conflict and Brexit should calm down
  • Tensions between stressing geopolitics and supportive monetary policies ease
  • Economic topics become more important for the capital markets in 2020

3. Trade conflict: Truce yes, solution no

  • US and China both interested in temporary truce
  • Trump needs stable economy, Xi wants to prevent economic slump
  • Long-term hegemonic conflict is here to stay

5. Monetary policies still expansive but losing impact

  • USA: Two rate cuts in 2020 to fight the economic slow down
  • Eurozone: Further measures unlikely due to the limited scope
  • Focus will remain on growth stimulation, but marginal utility of expansive monetary policies decreases markedly in an environment of negative interest rates

7. Interest rate development flat and low, but there is upside in Treasuries

  • Environment of negative interest rates here to stay in 2020
  • Yields of safe government bonds should remain nearly unchanged
  • US Treasuries with more upside due to the rate differential with the eurozone

9. Equities still attractive, but profits are no support anymore

  • Low GDP and profit growth limit upside of share prices
  • Increased but favourable valuations relative to other asset classes
  • Higher current yields compared to other asset classes drive the prices

2. Slower growth but no recession

  • Global economy will slow down
  • Slower growth in the US and the eurozone
  • Trigger: Sluggish global trade and uncertainty due to trade conflict

4. No hard Brexit but future trade relations uncertain

  • Probability for Great Britain leaving the EU without contract has dropped significantly
  • Election on December 12 will provide clarity about exit with Johnson Deal
  • Ensuing negotiations about trade relations keep weighing on the real economy, even though the Brexit topic will cool down at the capital markets

6. Calls for fiscal policies grow louder but remain unheard

  • Reduced scope and impact of monetary policies are arguments in favour of fiscal policies
  • Public debate should increase, also due to favourable funding conditions
  • Probability of implementation (still) low

8. Carry remains a favourite, but dispersion increases

  • Monetary policies and geopolitics support spread products
  • Investment-grade corporate bonds attractive
  • Selection is key due to dispersion amongst corporates and EM bonds

10. Only slight upside in commodities, but oil still promising

  • Oil market largely balanced and global stocks low in 2020
  • Additional return due to positive roll yields of crude oil
  • High excess supplies limit upside of precious metals