The latest edition of BofA’s European credit investor survey, dated October 16, shows concerns about a global downturn are more acute than ever in the face of ongoing trade tensions and persistent policy uncertainty.
The poll – which captures responses from BofA’s Bank, Insurance Company, Pension Fund, Asset Manager and Hedge Fund clients in both high grade and high yield credit – is conducted bi-monthly.
Editorializing around the results of the October survey, the bank’s Barnaby Martin notes that “fears of Global Recession have surged to the top”. At 42%, this month brought the highest reading for recession ever. Notably (and ironically, considering populist politics is in part to blame for the burgeoning downturn) Martin points out that it’s “the most consensus fear since Populism in Feb ’17”.
Since the August survey, central banks have pivoted even more decisively towards an easing bias, with the ECB having delivered a new package of measures and the Fed cutting rates for the second consecutive meeting, to name the two most high-profile examples.
Given that, Martin notes that “concerns over Quantitative Failure have declined materially (from 33% to 8%)”.
That’s interesting, as it suggests that credit investors across the pond are now much less worried about Quantitative Failure than they were prior to getting a look at the ECB’s new easing package. That, even as policymakers themselves were palpably concerned about the prospect of diminishing returns on QE at what was, by all accounts, the most divisive ECB meeting of Mario Draghi’s reign.
Another interesting bit from the survey: For all the hand-wringing about deflation, central banks are actually well ahead of the risk – or at least the realized risk.
“Central banks across the globe have cut rates rapidly in 2019. Some of this has been ‘insurance’ cuts, but much has been to buttress flagging inflation”, Martin writes, adding that “the pace of central bank easing is now far outstripping the reality of the inflation data”. Have a look:
Central banks, BofA says, “seem addicted to monetary easing”. In that respect, they’re no different than the markets they serve.
Finally, if you’re wondering what investors think would be the most bullish catalyst for risk assets in near- to medium-term, it’s not even close. Fiscal stimulus in Europe trumps everything else by a country mile.
Of course, “Europe” really just means “Germany”. On Thursday, Berlin slashed its outlook for growth in 2020 and according to sources, opposition to a concerted fiscal push is softening in the face of the worsening manufacturing slump.
Hope springs eternal.