Back in February, “global recession” shot to the top of the worry list in BofAML’s closely-watched European credit investor survey.
That came as no surprise considering the deteriorating macro backdrop, but it was notable that at 30%, conviction in that assessment was strong. “Investors’ biggest worry has sharply pivoted to Global Recession (30%), the strongest consensus for any single worry since Jun-17 when Credit Bubbles was at 33%”, the bank’s Barnaby Martin wrote at the time.
Another notable takeaway from the February survey was that when asked what “the most likely catalyst to kick-start eurozone growth is”, investment grade respondents overwhelming chose “China stimulus supports German exports”.
Fast forward a few months and guess what? “Global recession” is still at the top of the worry list only now, with even more conviction.
“This month, worries over Global Recession have jumped”, Martin writes, noting that what you see in the chart below represents “the strongest consensus for any single worry” going back to February 2017, when Europeans were spooked by the prospect of Marine Le Pen ascending to power in France.
Here’s the breakdown for IG versus HY investors:
As Martin goes on to point out, “many other risks have now faded by the wayside” with just 5% worried about a slowdown in EM/China and only 10% concerned about a trade war. That, despite clear signs that the Trump administration is about to turn its (hopefully figurative) guns on Brussels once a deal with China is sealed. Only 5% of IG investors are concerned about an equity market correction.
Moving along, respondents believe a restart to CSPP is the most likely outcome should the ECB be forced to lean against a downturn more forcibly. Tiering is a close second. It’s possible € credit investors are expressing their own preference – after all, it’s nice when the benefactors with the printing presses are putting a bid under the market in which you operate.
Apparently, everyone is just going to go ahead and assume that Europe is in fact Japan now. Or at least that’s the way the commentary (and the question to survey participants) reads.
“European investors expect Europe to experience a similar bid for credit and quality yield bonds when ‘Europe becomes Japan’ in the long term”, Martin says. Again, this is a “when” not an “if” question now.
With the global hunt for yield reinvigorated by policymakers, you might be wondering where folks are inclined to reach. On that, AT1s grab the top spot. Amusingly, 21% of IG investors say they’re fine because they know just where to go in terms of single-name and sector-level exposure to outperform.
Finally, when it comes to Chinese stimulus, about a quarter of respondents think it will “show up soon and result in much stronger China PMIs and thus German PMIs”. That can’t come soon enough – on Wednesday, the German government slashed its outlook for growth to just 0.5%.
At the same time, 40% said any stimulus China deploys from here will “only partially” boost the economy. Why only “partially”, you ask? Well, because, to quote the survey, “China is already levered.”
Indeed they are.
That seems like a particularly germane observation on Wednesday.