Fidelity Live: CIO Briefing

We’ve seen some calm enter markets from the wealth of monetary authority interventions and expectations of fiscal support to come. This has already manifested itself in some signals with volatility easing off -not just spot but through the curve, funding pressures e.g. cross currency swap levels calming down and the first signs of getting dollars to the right place. So the backdrop is improved though we are still left with a lot of uncertainty around covid-19. We can look to China for some encouraging news, where we are seeing a pickup of activity and sign of economic activity returning to levels pre 1st quarter.

We have seen a reasonable bounce in equity markets -a portion of that is arguably due to quarter-end rebalancing of portfolios trying to revert to core asset allocation weightings e.g. pension funds and other large institutional investors. These assets equate to about USD1trn so not insignificant moves. One challenge will be the shift of allocation from private to public and the process of managing that rebalancing and we think we’ll see more of this impacting in the coming months.

Signs of calm can continue for a bit longer but the challenge is the sentiment around whether fiscal support is actually making a tangible impact to the real economy and people’s income and businesses. If markets start thinking this uncertainty will run to May rather than April we will see further pricing challenges. We are only a few days into a period ofstability but by no means do we think markets can run into a v-shaped rally and there will be more challenges as we see policy play out.