Nataxis tips rally in 2019 for financial markets

January 4, 2019

HONG KONG - while the depressed level of financial markets in the United States and the euro zone currently is compatible with the assumption of a recession in 2019, the French banking group Natixis believes there will be a cyclical slowdown, not a recession.

"This is first due to the fact that financial markets are overestimating the risks (Brexit, trade war, Italy, declining liquidity, leverage), and also the fact that financial markets believe some countries (Italy) may pull out of the euro, which is impossible," Nataxis says in a research note.

"This is also due to the fact that financial markets fail to take into account a number of factors supporting activity (low interest rates, expansionary fiscal policies, lack of inflation, rising corporate profitability, solidity of companies' financial situation).

"Once investors switch from a crisis scenario to a cyclical slowdown scenario, there will be rally in financial markets, with a major decline in all risk premia," Natixis says. (ATI).