We have a Bank of England meeting tomorrow, so we have UK guru, Phil Rush, give his take on the meeting. He thinks they could upsize their QE programme.
On our usual Wednesday Deep Dives on recent academic papers, we have John Tierney take a look at a recent MIT/HEC paper on how earnings revisions behaved during the recent COVID collapse and bounce in S&P500. The academics find that there has been a meaningful repricing of risk premia that accounts for a significant portion of the moves.
Finally, we have our COVID update. Latam continues to be the hot zone, while most DM countries appear to have contained the virus.
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(total reading time: 3 mins)
We have a Bank of England meeting tomorrow, so we have UK guru, Phil Rush, give his take on the meeting. He thinks they could upsize their QE programme.
On our usual Wednesday Deep Dives on recent academic papers, we have John Tierney take a look at a recent MIT/HEC paper on how earnings revisions behaved during the recent COVID collapse and bounce in S&P500. The academics find that there has been a meaningful repricing of risk premia that accounts for a significant portion of the moves.
Finally, we have our COVID update. Latam continues to be the hot zone, while most DM countries appear to have contained the virus.
Enjoy!
Bilal
BoE Preview: Raising Stock To Sustain The Flow (4 min read) • The prevailing state of the UK economy is unrecognisable relative to the BoE’s last monetary policy report in January. Substantial downgrades are unavoidable, but so is the uncertainty around it.
• Damaged balance sheets will prevent a full and rapid recovery, supporting ongoing stimulus. With little hope for imminent normalisation and serious downside risks from secondary shutdowns, I expect the BoE to sustain its asset purchase pace.
• A slower pace of purchase would be needed to avoid hitting the current target stock before August. As that is undesirable amid sustained heavy gilt issuance, I expect the BoE to announce a £55bn increase to £700bn, with little point waiting.
(Phil Rush │ 6th May, 2020)
Earnings Expectations In The COVID Crisis (3 min read) The coronavirus crisis may seem to have dragged on for an age, but the reality is that the initial shock hit markets and most economies less than 2½ months ago. Since then we’ve witnessed massive volatility in the equity market. The equally weighted S&P 500 fell 39% from its 15 February high to a March low, and then recovered 26.7% by 20 April, for an all-in decline of 22.9%.
A recently released paper by HEC’s Augustin Landier and MIT’s David Thesmar, looks at analysts’ downward revised earnings forecasts during this period, and it considers to what extent these changes were a factor in the massive equity market volatility during this period.
It finds that 10% of the S&P 500’s all-in decline is attributable to lower earnings outlooks, and the rest to investors demanding higher risk premia or discount rates…
(John Tierney │ 6th May, 2020)
Global COVID-19 Tracker In the DM world, US, UK, Canada, Denmark, Finland, and Sweden saw small 2% increases in daily cases. Others barely saw any increases. On deaths, Canada, New Zealand and Japan stood out with 4%-5% increases on the day.
In the EM world, Colombia leads with an 8% increase in cases, followed by Brazil, Chile, and Russia at 7%. India, Egypt, Saudi Arabia also saw 6% jumps. Regionally speaking, Latin America appears under most pressure. On deaths, Mexico leads with a 10% increase, followed by Brazil, India, and Pakistan with 8%. Russia, South Africa, and UAE also saw 7% jumps…
(Bilal Hafeez, Stefan Posea│ 6th May, 2020)
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)