13TH CLIENT SURVEY

The first important message of our most recetn client survey is that the nature of risks has changed, from various macroeconomic risks in 2018 (trade war, sovereign crisis in Italy, higher long-term rates) to risks concentrated in the US, in China and in the UK (Brexit) in 2019. The risk of a global recession and the risk of a hard Brexit are perceived as the most serious issues weighing on the minds of investors, although not necessarily the central scenarios. The second message is that our clients do not expect a recession in 2019, but only a cyclical slowing down: GDP growth in the US should be between 2% and 2.5%, growth in the Euro Zone between 1.5% and 2%, earnings growth is expected to be positive, although relative weak (between 0 and 5%). The third message is that the risk of a rise in inflation is perceived to be low (Euro Zone inflation is forecasted between 1% and 1.5%, even with higher oil prices), and monetary policy is perceived to remain expansionary: no further Fed Funds hike or only 1 hike in 2019 in the US, no hike in 2019 by the ECB, and a new TLTRO. Correspondingly, the 10-year Bund rate should stay between 0.5% and 1%, or even at lower levels (which was not expected last year), the 10-year T-Note rate should stay between 2.5% and 3% but could even be lower for a third of our clients. No Euro Area crisis is either expected, with OAT-Bund and BTP-Bund spreads staying at lower levels, with a stronger euro (between 1.15 and 1.20 in one year). Overall our client’s views are close to ours: the main scenario is not a recession, inflation and interest rates stay low, the main risks come from China and Brexit, no sovereign debt crisis is expected in Europe. All of this should lead to a substantial improvement both in equity and credit markets.