Europe dominates risk factors in Amundi’s cross asset investment view

Risk factors associated with Europe’s debt crisis dominate the latest Cross Asset Investment Strategy note from Amundi.

Euro debt crisis: brief respite or lasting relief?

The easing of the debt crisis and recovery in the equity and credit markets are clearly something to celebrate. The break in the link between recession and financial stress gives a clear idea of the impact of the comments by the governor of the ECB. But will it be enough to reverse the trend and deflect risk in the long term? Not so sure, and certainly not without further strong messages and measures.

Can the ECB become like the Fed or the BoE?

It was at a true turning point in terms of monetary policy that Mario Draghi moved forward on 2 August and 6 September. The ECB has radically changed course, potentially opening the door to substantially expanding its balance sheet. But unlike its older sisters, the Fed and BoE, there are conditions to its intervention.

Competitiveness in EMU peripheral countries: outcome and remaining efforts required?

Peripheral countries have improved their competitiveness recently, but they must continue their efforts in order to reach a situation similar to the one prevailing before they integrated the Euro area. Ireland is clearly the top performer, whereas Greece still needs to double its efforts to diminish its relative unit labour costs.

The Spanish model is under scrutiny.

The effects of the real estate bubble burst have not all been seen yet. Housing prices will continue to decline and therefore weigh on household demand and banks’ balance sheets. Households and companies still need to reduce their debt. The hopes of the government are largely pinned on export performances. Improvement in this area, however, is unsustainable.

Spanish regional debt on the rise.

Spanish decentralisation laws have consistently expanded the responsibilities of the country’s regions. The weight of their debt as part of total Spanish debt is now extremely high and must absolutely be taken into account in Spanish budget balancing. In this article, we explain these factors, along with background that has led us to this situation.

United Kingdom: the “double dip” puts austerity and quantitative easing to the test.

Despite vigorous efforts, for now the United Kingdom has not posted better economic performances than the major eurozone countries. The crisis has brought the UK more in line with the economic pace of Europe, but the former is also burdened by unique difficulties.

HY spreads’ implied default rates vs our scenarios. Are spreads cheap by historical standards?

We updated our forecasts on speculative grade default rates and built a baseline and an alternative pessimistic scenario. Then we estimated the default risk implied in current market spreads and compared it to our projections and rating agencies’ forecasts. Finally, considering the link between spreads and bond yields, we addressed the potential for further tightening which could be justified by the gap with fair values.

Interim results plagued by the economic situation and the sovereign debt crisis.

For the first half of 2012, US corporate results increased by 7% versus a 10% decline in Europe. This differential was not only due to a more supportive economic climate but also – and to a large extent – to the quicker normalisation of profits in the US financial sector. Given the next reversal of the basis effect in the financial sector, the gap between the two regions will likely shrink.

Media: The Digital Opportunity.

Internet has emerged as a powerful advertising medium over the last few years: while it represented only 5% of global ad spending just 5 years ago, it is set to reach 25% by 2016. Advertising Agencies, already overexposed to this medium, are then set to mechanically outgrow global ad spend, but, even more interesting, their digital offer now goes well beyond advertising and their new services offer greater revenue potential.

Emerging market risky assets faced with decreased economic flexibility.

Emerging market equities have a performance lag compared to developed market equities and emerging debt assets. They also offer attractive valuations. But will this be enough as emerging economies deal with reduced leeway?

What is the state of speculation in commodities? The teachings of an index.

We propose the Working index which is a better method than using the net long positions of non-commercial agents to measure the state of speculation with the help of CFTC data. We conclude that the speculation on commodities is not actually the main driver of the price. Economic fundamentals are sufficient to explain the price variations.

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