Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
Germany bails out France
Christopher Dembik
Head of Macroeconomic Research
Summary: It's Germany to the rescue as France's banking system stands on the brink of collapse.
France is one of the European countries facing the highest wall of debt in the coming years. Before the Covid-19 pandemic outbreak, public debt was flirting with the 100% of GDP threshold and private debt was skyrocketing, reaching nearly 140% of GDP – far more than that of Italy (106%) or Spain (119%). And the emergency pandemic response has only accelerated the piling on of debt, with the level of public debt expected to rise above 120% of GDP in 2021. Private debt, mostly corporate, could increase another 20% in the worst-case scenario, growing faster than anywhere else in Europe.
At the same time, French companies on average have one of riskier credit profiles in the European space, with rapidly widening credit spreads. Despite a massive stimulus package of €100bn and a loan scheme in which the state has guaranteed up to 90% of the loans for companies, France is unable to avoid a wave of bankruptcies as many companies in the services sector are unable to cope with the series of “stop and go” lockdowns. Massive losses on state-guaranteed loans further weaken French banks which have been hit hard in previous years by weak growth and the low interest rate environment and, in some cases, by a slump in profits from their equity business. Investors are getting increasingly gloomy about the future return on equity, which triggers massive selling of French megabanks. Net revenue drops and loan provisions are on the rise, sending French banks’ market capitalisation and price-to-tangible book ratio to unprecedented low levels. Given the poor state of public finances and the already extraordinarily high level of debt, France has no other choice but to come begging cap in hand to Germany, in order to allow the ECB to print enough euros to enable a massive bailout of its banking system, to prevent a systemic collapse.
Trade: probably safer to buy the French banks after the bailout than selling them before, but both might be possible.
See next 2021 prediction:
Blockchain tech kills fake news
Quarterly Outlook
-
-
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
-
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...
Disclaimer