Deutsche Bank has polled its clients three times in the last few weeks asking when they think the Western world will mostly be back to normal.
Deutsche Bank also asked their clients whether they thought the coronavirus would lead to inflation or deflation on a 1 to 5 year view.
o Global economy goes back to works without further major alarm (successful vaccines/treatments perhaps)
o Lingering government and central banks support leads to global boom from 2021 Economy lifts off, pushing inflation higher
o Continued poor business confidence as companies and jobs are lost
o Government cut spending to repay debt = decade of global austerity
o Prolonged poor growth
Reality could be more nuanced:
Poll responses: Both Deutsche Bank’s clients and those on the Mercer call saw inflation as slightly more likely than deflation
The oil price goes negative in the US!
While many strange things have been going on in the global economy and markets, nothing has been as strange as the oil price falling MINUS $40 a barrel. Even after the event it is not 100% clear why this happened, but what appears likely is that with storage capacity running out, no-one wanted to physically receive any oil as they had nowhere to put it. This pushed the futures price lower. It’s reported that at the same time there were others who were ‘long’ oil who found themselves in financial trouble as the price fell. This forced them to sell regardless of the price, pushing prices negative. At the time of writing the oil price is very low, but positive. Oil prices will remain under pressure until the global economy recovers and we start driving cars and flying airplanes.
Focus on private debt
Already an attractive asset class, in our view, we believe private debt can today provide investors with an opportunity to both make investment returns and help support the global economy during the Covid-19 outbreak.
We see the following attractive characteristics:
For investors who can tolerate some illiquidity in their portfolio, we believe there are significant opportunities in private debt.
Markets have stabilised somewhat since the initial Covid-19 outbreak, but are waiting to see when and how strong the economic pick up is before quitting their current holding pattern.
In the short to medium term, we expect some more significantly poor economic data. We remain neutral on equities but believe there is still value in high yield.
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