Erste Asset Management

„Rough, nice and easy“ – Update from the Investment Division

„Rough, nice and easy“ – Update from the Investment Division
„Rough, nice and easy“ – Update from the Investment Division
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What has occurred since the long weekend?

The song „Proud Mary“was written by John Fogerty, the front man of the rock band Creedence Clearwater Revivial. There are many cover versions of this song. The best known is probably from Tina Turner. That version starts with the line “…we’re gonna take the beginning of this song and do it easy, but then we’re gonna do the finish rough“. It was different with the US-American equity markets yesterday. They started the trading day “rough” and closed “nice and easy”.  At the beginning of the trading session the S&P 500 traded in negative territory with ca. 1% and seemed to continue the trend of the last week. At the end of the trading day the mood of the market participants turned and the index closed with a gain of 0,4%. The reason for that mood change were news of lockdown loosening measures in California

The European equity markets were constantly in negative territory and the losses were around 3% and 4%.

The reason for the different developments in the USA and Europe was foremost that the European markets were closed on Friday and had a need to catch up the negative performance. The cause for the return of volatility over the last trading days was (as reported already) the comments by US-President Trump that he can imagine new punitive tariffs on Chinese imports..

Crude oil of the standard brand WTI traded clearly in positive territory with 7% after reports appeared that also US oil producers would cut production. Additionally there is hope that demand through the loosening measures in many countries will increase again. Investment grade government bonds and gold remained almost unchanged. The US-Dollar increased in value to the Euro by ca. 0,7%.

What will we pay attention to over the next weeks?

After one of the strongest and fastest decreases on the markets for risky assets in March we have seen in April also one of the strongest and fastest moves in the opposite direction. How did the asset classes develop?  We take a look at equity in developed markets (in local currency), European investment grade corporate bonds and European high yield bonds.

Global equity saw the low point in 2020 with a maximum loss of 33%, high yield bonds of 20% and investment grade corporate bonds of 8%. Due to the rallye over the last weeks a considerable part of these losses could be made up again.

(Source: Bloomberg)

Corporate bonds could make up the larger part of their losses (compared to the other two asset classes).

The reason for that are the support measures of the Central Banks, especially the ECB and the US-American Fed. We also see the other two asset classes (equity and high yield bonds) within a well-diversified portfolio as an attractive investment. In the near future, as we have seen over the last few weeks, volatility in these markets will remain high. The factors which will influence the markets over the next weeks will be:

  • The loosening measures and their impact on the number of newly infected.
  • The economic data, in particular in countries which were effected before Europe and the USA by the pandemic as they could be an example for the recovery.
  • The corporate results in the 1. Quarter
  • The research results for a vaccine or pharmaceutical to treat Covid-19
  • The lingering trade conflict between the USA and China
  • The influence of increasing issuing volumes of the countries

Legal note:
Prognoses are no reliable indicator for future performance.



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