Global markets outlook - July 2020 - Robeco
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Global markets outlook
July 2020
For professional investors
Special Topic Economy Equities Fixed Income Commodities & FX
Theme of the month
Unlocking value in the euro (I)
EUR/USD risk premium as a percentage
Part EURUSD unexplained by 2y rate differentials > United by a common ‘enemy’, Europe is joining forces to recover from the Covid-19
economic fallout. In doing so, it likely has triggered a catalyst to unlock the value in
the common currency; fiscal integration. On 18 May, the Franco-German axis
showed new vigor with a proposal for a EUR 750 billion ’Next Generation EU’
recovery fund. A key element is that the European Commission will issue bonds on
behalf of the EU to finance the recovery packages.
> The date of this announcement coincided with an inflection point in the risk
premium in the EUR/USD exchange rate, with market participants starting to
demand a lower risk premium for having euro foreign currency exposure. With
progress being made in the negotiations around the new fund, we could be near a
Source: Refinitiv datastream , Robeco
major inflection point for this euro risk premium. While there is still some debate
EUR/USD versus relative industrial production among EU members, the overarching signal is that Europe may finally get its act
together, requiring a lower risk premium for holding euro currency exposure.
> Next to the catalyst of fiscal integration, there is another reason to expect a stronger
euro. Industrial production levels in Europe have plummeted during the Covid-19
storm, also relative to the US. Europe’s manufacturing sector could recover more
significantly compared to the US in the near term. The US is now the epicenter of
the coronavirus in the developed world, while Europe is experiencing lower levels of
unemployment, has better job protection, and has the advantage that Germany’s
key trade links with China are a few months ahead of the US in the economic
recovery. An outperforming Eurozone manufacturing sector versus the rest of world
has historically coincided with a stronger trade-weighted euro.
Source: Refinitiv datastream , Robeco
All data to 30 June 2020
2
Special Topic Economy Equities Fixed Income Commodities & FX
Theme of the month
Unlocking value in the euro (II)
EUR/USD and the short-term interest rate differential
> While we believe a decline in the risk premium will push the euro higher against
most currencies, we particularly see upside against the US dollar. The traditional
driver of US dollar strength, the short-term interest rate differential, has strongly
diminished. Historically, this differential has largely explained changes in the
EUR/USD exchange rate, as seen in the chart.
> This differential has compressed massively during the last 18 months or so, falling
from an historically large 3.50% to less than 0.90% now. This means that the relative
attractiveness of the US dollar compared to the euro has declined. In fact, if we take
inflation expectations which are higher in the US into account, the real short-term
interest rate is now higher in the Eurozone. Based on purchasing power parity, the
Source: Bloomberg, Robeco dollar is now 20% overvalued.
Budget deficits: the US versus the Eurozone > Another reason for potential dollar weakness is the US government’s budget. Based
on the latest projections, the US budget deficit will be significantly bigger than that
of the Eurozone in the coming years. In addition, the other major imbalance within
the US economy, the trade deficit, may lead to further dollar weakness if investors
start to ponder the ‘twin deficit’ again.
> Finally, US dollar weakness would also occur should further fiscal integration result
in the creation of Eurobonds. As these bonds represent the whole Eurozone, this
new asset would likely have a higher yield than German government bonds, further
reducing the yield gap with the US. If Eurobonds are issued, a diversification of
capital flows over low-risk assets would be possible, supporting the EUR/USD.
Source: Bloomberg, Robeco
All data to 30 June 2020
3
Special Topic Economy Equities Fixed Income Commodities & FX
United States
Economic activity is rebounding sharply
> The Fed continues to be concerned about the US economy and remains ready and
willing to provide support. The measures continue to be targeted at providing
liquidity and offering credit/lending support. When it comes to the more traditional
toolkit, the Fed has made clear what its intentions are: rates will remain low at least
until the end of 2022. Monthly purchase of Treasuries and mortgages will continue,
and purchases of up to USD 250 billion of corporate bonds in the secondary market
will be made until the end of September. Yield curve control remains a serious
option to strengthen forward guidance, but negative rates are off the table for now.
> The US economy has been strengthening. While it is still too early to call the bottom,
positive momentum is building. The US surprise index reached its highest level in
Source: Bloomberg, Robeco
more than a decade. The latest retail sales figures were much stronger than
US: The number of Covid-19 cases are still increasing expected, though the signals coming from job market unfortunately remain
inconclusive. The outlook for manufacturing looks encouraging: both the Philly Fed
and the New York manufacturing index moved into expansionary territory, indicating
that manufacturing can snap back quite rapidly.
> Besides the economy, there are other developments that pose a risk for the US. Civil
unrest is on the rise, and geopolitical tension between the US and China remains.
The total number of Covid-19 cases continues to increase. It is difficult to gauge
whether we are already dealing with a second wave in the US, or if we are still in the
first wave. On the one hand, the situation in New York is improving, while on the
other hand, cases are rising rapidly in Texas, Florida and California.
Source: USAFACTS & Robeco All data to 30 June 2020
4
Special Topic Economy Equities Fixed Income Commodities & FX
Europe
Producer confidence jumped in June as economies reopened
> A steady flow of improving Eurozone macro data was seen in June. The rebound in
producer confidence PMI indices has been largely a function of reopenings. The
jumpstart in activity led to the strongest rebound in PMIs in the Eurozone, up to
51.3 from 32.1 in May. The overall Eurozone composite index rose to 47.5. At face
value, this indicates the Eurozone economy is still contracting but at a decelerating
pace. Real activity data (flight traffic, electricity consumption, congestion etc.)
however suggests that activity is no longer contracting, igniting a discussion among
market participants whether PMI survey participants correctly fill it in. The latest
PMI data could potentially under-report the magnitude of the economic rebound.
> Despite promising signs of the Eurozone economic recovery emerging from the
abyss, macro risks in Europe are still on the downside, as the recovery remains
Source: Refinitive, Robeco
incomplete. The Eurozone capacity utilization rate in Q2 is only 69.7%, a level last
Cyclical lows in capacity utilization show an incomplete recovery seen in Q2 2009. Consumption could be hurt by lower income levels from increasing
unemployment and negative wealth effects.
> Localized flare-ups of Covid-19 in Germany show the pendulum between reopenings
and local social distancing is still swinging, forcing governments in Europe to extend
safety nets for workers and corporates until the economic recovery is self-
reinforcing. For instance, Spain has extended to September its ERTE’s program
initially devised to help 3.5 million workers by paying 70% of their current wages.
Money must be transferred quickly before insolvency risk materializes at the
corporate or household level. Talks about the EUR 750 billion EU Recovery Fund
have made progress, and we expect a near term compromise here between the
frugal EU members and the Franco-German axis.
Source: Refinitive, Robeco
5 All data to 30 June 2020
Special Topic Economy Equities Fixed Income Commodities & FX
Japan
Business conditions see continued deterioration
> The Bank of Japan didn’t change its policy stance at its last meeting. There was no
change in the interest rate, yield curve control remains, and bonds will continue to
be purchased. Changes were made, however, to the special support programs which
aim to cushion the impact of Covid-19. Their combined size was raised substantially
from USD 700 billion to roughly USD 1 trillion. The bulk of this money is allocated to
the special fund provisions, while the remainder is for purchases of corporate bonds
and commercial paper. The program complements the government credit guarantee
scheme that was recently raised in the second supplementary budget. We continue
to think that the BOJ will refrain from cutting rates.
> Japan lifted its state of emergency in May and continues to lift restrictions. This
Source: Bloomberg, Robeco further easing of restrictions should at some point start to provide some support to
Inflations sees a small uptick the economy. Currently, however, there are few bright spots, as the macro data
% remains weak. This continued weakness of the Japanese economy is also reflected
by the economic surprise index, which continues to slide lower. The latest export
numbers showed a double-digit decline year on year. Exports to the US were
particularly weak, and in terms of goods, the weakness was mainly in autos. A
positive sign was that exports to China were firm.
> The outlook for inflation remains poor. The inflation index excluding both energy
and fresh food – the gauge preferred by the BoJ – increased to 0.1% year-on-year
and remains far below the target of 2.0%.
Source: Bloomberg, Robeco
All data to 30 June 2020
6
Special Topic Economy Equities Fixed Income Commodities & FX
China
Uptick in commercial floor space shows return to new normal > After reopening its economy, Chinese economic activity has made further advances.
Industrial producer confidence metrics have returned more solidly into positive
territory, with the NBS manufacturing business expectations index back at 57.9, a
pre-Covid-19 level. Car sales, commercial floor space utilization and retail sales have
all improved, confirming the signals from real activity indicators such as levels of
road congestion in large Chinese cities. A local resurgence of the virus in Beijing in
June seems to have been largely contained by rigorous testing and quarantining.
> Geopolitically, China and the US have said the Phase 1 deal arrangements are being
respected by both parties. In a gesture to China on trade, prohibitions on US
companies dealing with Huawei were amended last month by the US Commerce
Department. Below the surface, tensions are still brewing though over the new
Source: Refinitive, Robeco Chinese security law for Hong Kong which was enacted in July. The recent Chinese-
Another round of RRR cuts is likely Indian border conflict also illustrates a volatile socio-economic environment that will
likely keep Chinese policymakers concerned about downside risks.
> With headline inflation dropping fast due to falling food and pork price inflation, and
PPI inflation sinking further into negative territory, we still expect further monetary
easing. We also remind ourselves that the 17 April Politburo meeting explicitly
mentioned the reserve requirement ratio (RRR) and interest rate cuts in the
discussion about its monetary policy stance. Moreover, a June State Council meeting
supposedly reiterated the need for RRR cuts. It thus seems reasonable to expect at
least another 50 bps cut in (small) banks’ RRR in the coming weeks and months.
Source: Refinitive, Robeco
All data to 30 June 2020
7
Special Topic Economy Equities Fixed Income Commodities & FX
Equities (I)
An impressive rebound continued in June
> Since 1 April, global equities in local currency are up 18.5%. Bear market recoveries
typically take 10 months, but this rebound has been accelerated as massive stimulus
by central banks early in the recession refloated risky assets. Also, equities typically
start to recover midway through a recession, and although the NBER institute hasn’t
yet called the end of the US recession which it said had begun in February, it will
likely do so shortly. That would make it the shortest US recession ever, with its
midpoint in April. US unemployment has starting to trend down already, as leading
indicators such as the June ISM manufacturing reading of 52.6 suggest that
economic activity is expanding again.
> So, given these historical links between business cycle inflection points and equity
Source: Refinitive, Robeco
market behavior, there is nothing unusual about the markets rebound. Yet, the
Earnings revisions saw net upgrades for US global Covid-19 recession is also one of the deepest of recent history. At its heart is
an exogenous shock that halted supply chains and a very broad range of business
activities for an extended period at different timeframes across the globe in the past
six months. Even countries that didn’t opt for full lockdown like Sweden have seen
economic activity slump, providing evidence that the demand side of the economy
also contracted strongly, due to risk aversion among producers and consumers.
Many investors have missed out on the rebound in equity markets since 23 March
and are now trying to get a piece of the action. Fear of missing out (FOMO) is visible
in the recent strong performance of sectors such as leisure, real estate and air travel
that suffered badly in the early March sell-off, and for good reason, as they will likely
be permanently affected in the post-Covid-19 era.
Source: Refinitive, Robeco
All data to 30 June 2020
8
Special Topic Economy Equities Fixed Income Commodities & FX
Equities (II)
How deep is the trough? Q2 earnings will tell
> Yet, it would be premature to conclude that FOMO has created exuberance. The
skew index, a gauge for market risk aversion, is at 146. This is a level that
corresponds with market participants clearly willing to pay up for insurance to
mitigate the risk of a strong equity market sell-off. Nonetheless, the level of the
skew tells us little where the market is heading in the near term.
> The guidance around the Q2 earnings season from corporates will be far more
important with regards to near-term market direction. Strong macro surprises in
the US have led to 12-month forward earnings upgrades into net positive
territory. A confirmation of corporate CEOs that earnings will indeed improve
into the second half of 2020 and onwards could sustain the market rally. Central
Source: Refinitive, Robeco
bank forward guidance is still supportive as well.
Strong compression in equity risk premiums
> Yet, in our view the market is ignoring increasing numbers of local resurgences
of Covid-19, the upcoming US elections, and less attractive equity valuation
levels. In the US, the Shiller CAPE is back at 30, a valuation level consistent with
more downside risk. Risk premiums have compressed strongly in recent months,
and are not reflective of the risks we have discussed.
> As we indicated last month in this section, the pain trade for equities could be
up. Despite a deteriorating risk/reward balance heading into the second half, the
equity market could drift upwards.
Source: Refinitive, Robeco
All data to 30 June 2020
9
Special Topic Economy Equities Fixed Income Commodities & FX
Developed Market Equities
Developed market equities; positive momentum decelerates
> The rotation in momentum leadership within developed countries to higher beta
regions continued. Short-term momentum however decelerated, as the market
entered a consolidation period after a historic bounce off the March lows.
> Short-term momentum continued to be positive overall, with monthly momentum
of equity returns in local currency showing that appetite for US equities remains
healthy: the S&P 500 gained 2.3% in US dollar terms. The Nikkei 225 equity index
followed, rising 1.7% in yen in June. The European Stoxx600 gained 1.4% in euros.
The long momentum signal (12M-1M) in local currency of the S&P 500 has
remained positive (+3.0% ) at the end of June. The long-term signal for the
Eurostoxx 600 is still the most negative at -8.7%. The long momentum signal for
Source: Refinitive, Robeco Japanese equities turned positive and is now at +1.5%.
Equity valuation: The Shiller PE is back at 30 > One key question for regional equity allocation is who will recover faster from the
Covid-19 virus, Europe or US? Lower Covid-19 case counts, better job protection,
lower unemployment and a lower political uncertainty on the European continent
could see European equity valuations rerate versus the US. With the Shiller PE again
at 30, the US remains expensive both from an absolute as well as a relative point of
view. Nonetheless, the tech heavy US indices were able to weather a worsening
pandemic better compared to more value oriented European equities. Earnings
revisions in the US are stronger as well. These opposing forces could largely balance
each other out and limit the upside in the near term for European (as well as
Japanese) equities versus the US in this first stage of the recovery.
Source: Refinitive, Robeco
All data to 30 June 2020
10Special Topic Economy Equities Fixed Income Commodities & FX
Emerging vs. Developed Equities
China: Manufacturing and non-manufacturing PMIs > Emerging market equities realized a positive return of 6.3% in June. With that
return, they reversed some of their underperformance in recent months.
> China continues to lead the way out of the Covid-19 crisis. Both its manufacturing
and non-manufacturing PMI readings rose in June, with the latter rising to its
highest level since March 2019. Activity levels are close to normal and have risen to
above normal in some industries as the recovery continues. While more diversified
than in developed markets, Chinese stimulus on an aggregate level is formidable.
> China, however, is not representative for most other emerging regions. Other Asian
countries in South America and Africa are still very much in the first wave of the
Covid-19 outbreak and have yet to flatten the curve. In addition, the room and
willingness for stimulus is more limited than in developed markets, making emerging
Source: Bloomberg, Robeco
equities more vulnerable in case of a (temporary) setback.
Valuation: Emerging versus developed markets
> On a more positive note, commodity prices have started to move higher. Historically,
emerging equities and commodities are positively correlated. However, with both
developed and emerging equities pricing in a ‘V-shaped’ recovery, we believe
commodities offer the better risk/return profile.
> Equities in general are pricing in a very upbeat recovery path. This could be
challenged in the near term as the Covid-19 outbreak continues. Also, the stimulus
buffer in emerging markets is – with the exception of China – smaller compared to
most developed markets.
Source: Refinitiv Datastream, Robeco
All data to 30 June 2020
11Special Topic Economy Equities Fixed Income Commodities & FX
AAA Bonds (I)
US 10-year yields have been flatlining over the last two months
> In general, bond markets were pretty much unchanged compered to last month.
The exceptions were found in the European peripheral market that benefitted from
the announcement of the new European recovery plan.
> The Covid-19 pandemic forced governments to support their economies, tapping
the bond markets to pay for it. In such circumstances it is handy to have a price-
insensitive buyer willing to absorb the extra supply. The presence of central banks
will prevent an unwelcome rise of government bond yields. Still, the level at which
bond yields will ultimately settle will depend on how economies develop.
> What is crucial for economic activity is the way the pandemic evolves. In China and
Source: Bloomberg & Robeco (data to 30th June) Europe, the easing of measures has so far only led to some local outbreaks, which
were rigorously dealt with by governments at a local level. The situation in the US is
GS effective Lockdown Index: a light tightening of easing measures more complicated. Cases are rising exponentially in major states like California,
Florida and Texas. How these states choose to deal with the virus will be crucial. Will
they revert to strict lockdowns, or will other less stringent measures be taken?
> Although public awareness, social distancing and other measures will help prevent
the virus from spreading, it will continue to be with us for some time. The reactions
of governments, producers, consumers and markets will determine what the impact
on the economy will be. Even if governments refrain from implementing lockdowns,
the high costs associated with any containment measures mean it cannot be ruled
out that confidence amongst companies, markets and consumers will be badly hit.
This can have the same economic consequences as a lockdown.
Source: Goldman Sachs Global Investment Research, University of Oxford
(covidtracker.bsg.ox.ac.uk),Google LLC “Google COVID-19 Community mobility report ,
Apple Mobility Trends (data till June 29h) All data to 30 June 2020
12Special Topic Economy Equities Fixed Income Commodities & FX
AAA Bonds (II)
The fiscal response will be substantial and timely
% GDP
> While Covid-19 continues to be an important risk to economic growth, the reality is
% GDP
Estimated fiscal deficits 2020 vs 2009 that in general, economic data has been improving. Of course this is an
improvement from a low base, but this is always the case during recovery phases.
The US surprise index has reached its highest level in more than a decade. Also, the
latest US retail sales figures have massively improved, and the housing market
continues to recover. In the Eurozone, we see purchasing manager indices
bottoming on both an aggregate and a country level. While the German number is
still below 50, the French number has moved above the 50 threshold.
> This trend is also visible in consumer confidence numbers that are improving in both
the US and the Eurozone.
Source: Haver analytics & Barclays Research
> We continue to think that we will remain on the path of recovery. The size of the
Consumer confidence is rebounding in the US and Eurozone support provided by both the fiscal and the monetary authorities is by itself
exceptional. The fact that the monetary and fiscal authorities are providing this
support in a coordinated manner creates a strong tailwind that will continue to be
growth supportive.
> We think that rates will continue to be torn between improving economic activity
and managing the spread of the virus. Given the central banks’ current policy
settings, we think it will be difficult for rates to move substantially higher. We
currently don’t have a strong view on the future path of interest rates.
Source: Bloomberg & Robeco
13 All data to 30 June 2020Special Topic Economy Equities Fixed Income Commodities & FX
Investment Grade Credits
Credits: Spreads in the Eurozone and US
v > Global investment grade bonds realized a positive return of 1.7% in June, ending the
quarter just 1% below the all-time high recorded in early March. Spreads tightened
further, falling to 150 basis points, roughly equal to the long-term average.
> Obviously the low-hanging fruit in investment grade corporate bonds (and other
asset classes for that matter) has been picked. Yet, we remain constructive on the
asset class. Central banks around the world continue to buy corporate bonds as part
of the stimulus to combat the Covid-19 crisis and have shown clear willingness to do
more if deemed necessary.
> The continuous bond buying by central banks should lead to fewer downgrades by
Source: Bloomberg, Robeco rating agencies. The share of downgrades has already dropped significantly in the
last two months. In addition, we expect bond issuance growth to drop significantly,
Credits: Cash Reserves as most credit lines needed to battle the economic impact of the Covid-19 virus
v outbreak were drawn in March and April. Issuance should also drop because M&A
and share buyback volumes will drop sharply.
> US bonds come with higher yields, taking hedging costs into account, but also have
slightly lower ratings and higher duration. European bonds have very low yields to
maturity, but much higher cash balances.
Source: UBS
14 All data to 30 June 2020Special Topic Economy Equities Fixed Income Commodities & FX
High Yield
Global high yield: Average spread
> Global high yield bonds realized a return of 2.1% in June, beating equities for a
second consecutive month. The average spread fell 40 basis points to 660, but most
of that tightening happened in the first couple of days.
> Many performance drivers for high yield bonds remain in place. We believe the
global recovery will continue, but is unlikely to be V-shaped, and central bank and
government stimulus remains aimed at protecting jobs and preventing defaults.
History shows that even after a significant tightening during the peak of the
economic crises, high yield (and investment grade) bonds tend to keep performing
strongly for at least the next 12 months.
Source: Robeco & Bloomberg > This is also reflected in the spread chart on the top left. A spread level of 660 basis
points only occurs either on the way up to a peak in the spread or on the way down
High yield bonds: Relative valuation to more normal, non-recessionary spread levels of around 400 basis points. While
we believe the latter is more likely than the former, the obvious risk is that a
renewed downturn or double dip leads to an additional wave of defaults.
> Compared to equities, high yield bonds still offer value. In fact, with equity valuation
surpassing pre-crisis levels, the valuation gap has widened during the last month.
We believe valuation and central bank buying can provide a buffer should the
economy start to struggle a bit.
Source: Robeco & Bloomberg
15 All data to 30 June 2020Special Topic Economy Equities Fixed Income Commodities & FX
Emerging Market Debt
Emerging market debt in local currency: Spread and yield
> Local currency emerging market debt realized a positive return of 3.2% in June. Its
yield hit another record low, closing the month at 4.50%, with the spread relative to
5-year US Treasuries almost unchanged at 4.19%.
> On average, emerging currencies fell roughly 1% in June. This had much to do with a
stronger euro, a trend we think will continue, as explained in our theme of the
month. We also believe that the upside for some emerging currencies, such as the
Turkish lira, is limited. The Covid-19 recession has taught us that, as a grouping,
emerging countries have less room for further stimulus compared to developed
countries. In the event of a (temporary) setback in the global recovery, emerging
currencies could be vulnerable.
Source: Bloomberg, Robeco
> This has implications for the asset class – not only because currencies are the main
Emerging market currencies against the euro performance driver, but also because the current yield has dropped to another
record low. This means there is little buffer if emerging currencies should weaken.
Compared to high yield, yields also look less attractive. In addition, while we believe
developed market central banks would step in, likely expanding the eligible universe
for bond buying, there is no ‘protection’ for emerging currencies. In fact, EM central
banks might be inclined to weaken their currencies to improve competitiveness.
> Like EM equities, emerging currencies tend to perform well when commodity prices
rise. But we see more upside for the latter, as supply and demand rebalancing has
yet to take place, whereas EM currencies have partly priced in better times ahead.
Source: Thomson Reuters. Refinitiv Datastream, Robeco
All data to 30 June 2020
16Special Topic Economy Equities Fixed Income Commodities & FX
FX (I)
G-10: Cyclical currencies keep leading the way
> The euro was among the strongest currencies within G-10 in June, only losing
ground against the antipodeans during the month. Both the Australian and New
Zealand dollar benefitted from the high correlation to risk, strong economic linkages
to Asia, and low numbers of Covid-19 cases. Also, both still offer a more-than-
decent positive carry. There are differences though from a monetary policy
perspective. The New Zealand central bank is more dovish than Australia’s, and it is
highly likely that it will cut rates while Australia remains on hold.
> The euro continued to enjoy positive momentum for most of June. The reason for
that is a couple of risks have become less pressing for the single currency.
Source: Bloomberg, Robeco > The negotiations about the final structure of the EU Recovery Fund are far from
Europe: Policy uncertainty continues to drop over. It is, however, a positive that the negotiations are mainly about its structure,
and not so much about the necessity of the instrument. The willingness to issue
debt on a European rather than an individual country level is a major step forward
for further European integration. Off course, it is only a temporary measure, and
sufficient caveats remain. Time will tell whether this is indeed a defining moment for
the Eurozone, but for now we think it is a positive.
> The risk that the Bundesbank will pull out of the European Central Bank’s bond-
buying program has diminished. Based on documents that the ECB provided about
its policy decisions, the Bundesbank will need to decide for itself whether the ECB
has overstepped its powers, and will need to present its findings to the German
parliament and government, as demanded by the German constitutional court.
Source: Bloomberg, Baker, Bloom & Davis, Robeco All data to 30 June 2020
17Special Topic Economy Equities Fixed Income Commodities & FX
FX (II)
Economic surprises: Strong rebounds
> So, while things look a bit brighter from a euro perspective, the US dollar
perspective is a bit more sobering. The greenback faces quite a few issues: a twin
deficit, less yield protection, a very active central bank, increasing Covid-19
infections and upcoming presidential and congressional elections.
> Economic data has been improving in most G-10 economies. The question is how
sustainable this is, as the improvements are coming from extremely low bases. It
therefore is still uncertain whether we are dealing with a with V- or U-shaped
recovery. Given that most risky markets seem to be pricing in a V-shaped recovery,
there is a risk that disappointment will set in if this does not materialize. This would
be beneficial for the US dollar, as it remains a defensive asset.
Source: Bloomberg , Robeco
> We think that the European Commission’s recovery fund is an important step for the
Long USD is not overcrowded yet
Eurozone. While it remains to be seen how much of a game changer this really is,
we are willing to give it the benefit of the doubt. As such, we think that there is a
window of opportunity for the euro to strengthen, as the break-up risk should be
lower.
Source: BofA Global Research FX and Rates Sentiment Survey
All data to 30 June 2020
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