Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Stéphane Déo, Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.
Summary
Topic of the week: Credit market: what default rate?
- The economic recession that seems inevitable in the Eurozone but also the rise in rates that deteriorate debt ratios should inevitably lead to an increase in the default rate.
- Our approach leads to a moderately pessimistic view: a default rate that increases next year above its long-term average, but remains well below acute crisis levels.
- The recent move has brought spreads back to a more reasonable level. With Damocles’ sword hanging over a potentially much more negative economic scenario, it is likely that much of the tightening is behind us.
Market review: Global equity fund flows pick up
- Global yield curves invert further
- Sharp narrowing in sovereign and credit spreads
- UK budget well received by markets
- Significant inflows into global equity funds
Chart of the week
Details of European inflation figures released last week showed no signs of slowing. On the contrary, our “trimmed” index, which uses the Cleveland Fed methodology, is at an all-time high and accelerating.
Inflation is widespread and shows no signs of running out of steam.
However, the downside is that industrial price inflation in Germany rose from 48.5% in September to 34.5% in October. Still extremely high but a first sign of slowing down. The peak of inflation may not be that far away in Europe.
Le chiffre de la semaine
The amount of TLTRO prepayments in billions of euros. This figure is paradoxically low in view of certain expectations and especially of the more than 2 trillion excessive liquidity in the system.
