« Exchanges at Goldman Sachs

Markets Update: March 6, 2020

2020-03-06

Amelia Garnett of Goldman Sachs' Global Markets Division provides a quick update on how investors are responding to ongoing volatility around coronavirus concerns.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges. Goldman Sachs markets update from our sixth every week, sit down with leaders across the firm to get their quick taken, what they're, watching and markets, and today we have our first ever guest Amelia Garnett back, on from our global markets, division Emily walk into the programme. Thank you so much we haven't. We back our rights, Amelia Creasy Times on the trading for how's, it feel right now to be down there, its wild. I mean these have been some of them. He's volatile markets during my career Goldman busiest by far. Yes, is being very volatile and has been a lot to keep up with so Gruner viruses, Aussee front centre for investors and its lead to a lot of volatility. What's happening so model embracing the economic impact of a global epidemic is not something. Investors would claim to have an edge on. We ve seen unprecedented moves across asset classes. It's hard to ignore. The move lower in equity markets yields across the globe the d oil and so on, and investors are just grappling to manage risks amidst poor liquidity and responds to the evolving use flow.
What's been pressed into where the markets are right now, just to put some context on the moves rate markets now price for the feds to cut rates by the end of this year to around thirty basis points and on a forward looking basis, it looks like they ll, never be able to raise rates beyond that say, seventy basis points over the next ten years, at the same time, inflation expectations or at all time low, despite the fact that the feds cutting rates should ensure the market is basically pricing, a large disinflation re shock that will prevent the FED from really hiking rates anytime soon, the next decade. How does that reaction seem right to me, That's him, like a bit of an over reaction to the events that we see in unfold. I mean no gonna, try and make any predictions about how quickly or aggressively this virus is spreading and we're all. Frankly, looking at this one thing which is the rate and scale of the spread, but what I would
as it is clearly a very broad distribution of outcomes, and I think that the market is putting a lot of weight on the negative tail, as evidenced by the price action. So if we fortunate and the spreads and we can avoid widespread long, lasting quarantines across Europe and the U S and the broader globe. I think market pricing, probably as a little defensive at this point, and we could see leave rally. Okay. So what do you think of the timing might be for some sort of recovery in the markets? I would say: clients vexations through the middle of last week, was that we were operating with a kind of vitiate recovery to a very quick sat back, hopefully by the end of key one. And frankly, if you looked at equity markets in China, you probably believe that thesis that said appliances, ran to the view that this is gonna be more of a prolonged, longer lasting issue. As, moreover, you shaped, or else shaped economic recovery, much like we saw in the european crisis a twentieth
and in twelve, but really how long this can last and how severe it is. Is the question we will try to answer Samuel it's hard to paint all clients with the same brush. But what of the kind that your work With every day how they reacting to two what's going on the markets today, so I cover a mix of equity in credit and macro hedge funds. So, to the extent that I can summarize their activity, I'd say, clans fortunately did have some equity protection on going into this week that a function of plants programmatic? He buying equity puts particularly given how late we are in the bull market, but also other were hedged for Super Tuesday, so in both instances clans were able to monetize their hedges, given the move lower in equities and move high and volatility and other very pop, defensive trade we ve Seen- is too short. Investment grade and high yield credit. The thesis there is that credit outperformed equities all three twenty nineteen on a risk adjusted basis so going into this year, credit spreads had got very tight and corporate life
it has got pretty high and then, when the market started, to crack invest is viewed credit as the more convex hedge, that is to say they were looking to get more bang for their back by shooting credit. Rather than equities. We ve seen as she credit spreads on sectors like cruise liners energy, auto all the kind of sectors that will be impacted by this virus start to price in some default risk, and we ve also seen material widening at the index level. Products like cd x, I e g, cd exhaled, so so this as wine out. But what would happen in the wake of the FED? Surprise rate cut this week, just say: I'm clearly central banks have made a coordinated effort to caught rates. We ve had the FED go fifty basis points this week. We also had the Bank of Canada follow that and the albeit an likely, be more cuts to come, and we ve seen clients respond to that by positioning for low interest rates around the globe, particularly in countries where that is
to cut rates like the. U S we haven't seen so much activity from Europe and in Japan where that already close to that low abound. But from an economic perspective, these cuts suggest one piece of the puzzle and should help boost consumer business confidence and ease financial conditions. But it's not going to convince people to travel or spend and more importantly, is not going to reduce the rate of infection I'll fix, broken supply chains to we really rely on healthcare professionals, policy, experts and governments for that and kinds agree with me in that respect and that we saw the Essen p clothes significantly lower on Tuesday. Despite the fifty basis points caught from the fat, lower financings knock, store aggregate demand ok, so while the focus of this episode in this week has been around corona virus but heading into the week, there was a lot of focus on Super Tuesday, and that became a bit of a sigh
shall. But what about former vice President Joe Biden Strong, showing on Tuesday had it added the investors? Take that? Yes, they politics is yet another thing that our investors, and not particularly experienced in investing with I mean it's hard to nor the rally in markets on Wednesday, following Vice President Biden. Rebound, need look no further, then the manage healthcare stocks that closed up the day around ten or fifteen percent as the market price down the more progressive agenda from Senator Saunders. That said, I'd say these moves, and, frankly, rounding era in the context of the moves lower driven by the virus, so had to weaken them It's what you gonna do to unwind this weekend or is that off the table, so I'm hoping to travel to South Africa for friends, wedding but we'll see, whether I am allowed to see whether you allowed thanks for joining us again, Amelia your first repeat, guest. Thank you, and in case you, MR check out or other podcast this week with heats Tariff Goldman Sachs Research on how start ups or using computational biology in drug discovery thanks and have greatly
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Transcript generated on 2021-05-20.