Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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OP 2019: EU announces a debt jubilee
Christopher Dembik
Head of Macroeconomic Research
Summary: Unsustainable levels of public debt prompt the ECB to act in a way that isn't as unprecedented as we would like to think.
For the full list of Saxo's 2019 Outrageous Predictions, click here.
From Ancient Babylon to 1930s Europe, debt jubilees have been far more common
than most of us may realise. As demonstrated by economists Carmen Reinhart and
Ken Rogoff in their seminal work “This Time is Different: Eight Centuries of Financial
Folly”, restructuring and write-offs have also played important roles in resolving
financial crises.
Contrary to what the Greek debt tragedy seen since 2010 would suggest, debt
forgiveness has been very common in Europe. In the interwar period, jubilees swept
across Europe to the tune of 50% of GDP for France, 36% of GDP for Italy, and 24% of
GDP for the United Kingdom.
In 2019, the unsustainable level of public debt, a populist revolt, rising interest rates
from European Central Bank tapering/lower liquidity and sluggish growth reopens
the European debate on how to get ahead of a new crisis. Italy is the key bellwether
as it faces a massive maturity wall set to reach around €300 billion in refinancing
over 2019 as interest rates spike. Quickly, Italian contagion sickens Europe’s banks as
the EU lurches into recession. The ECB resorts to new TLTRO and forward guidance
to limit the carnage, but it’s not enough and when contagion spreads to France,
policymakers understand that the EU faces the abyss.
Germany and the rest of core Europe, which refuses to let the Eurozone fall apart,
have no other choice than to back monetisation. The Economic and Monetary Union
extends a debt monetisation mandate to the ECB for all debt levels over 50% of
GDP and guarantees the rest via a Eurobond scheme while moving the controversial
Growth and Stability goalposts.
A new fiscal rule allowing the first 3% of GDP in deficits to be mutualised in 2020 is
adopted by EMU countries, with everything beyond subject to a periodic review by the
European Commission linked to the state of the EU economy.
Quarterly Outlook
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Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
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Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...