CIO Flash by Yves Bonzon

Extraordinary circumstances require a very ordinary approach, survival. Nevertheless, more than ever, it is crucial to apprehend the situation with our slow brain. Uncertainty has rarely been so extreme. To sum up, we can imagine that this is the time when panic is salutary, but most probably a calm approach is the most effective one to protect our wealth in the medium-term. So let’s use our slow brain and review what we know, what we don’t know, and what the markets discount at current prices.

WELL-FUNCTIONING MARKETS Since the last week of February, trading volumes have approximately doubled in the markets. To date, markets have functioned normally, providing investors with the ability to transfer risk and adjust their positions to developments in a rapidly changing environment. The market impact of investment pools trading large sizes seems moderate so far. From this point of view, evidence confirms that we do not have a systemic risk problem, at least not yet.

IS ITALY TRYING TO BREAK ITS FISCAL STRAIGHT JACKET? In Italy, faced with a rapid rise in coronavirus deaths, the government has decided to quarantine nearly 16 million citizens. Milan, the economic lung of Italy, is also threatened with suffocation. The decision is obviously unprecedented in peacetime. As we discussed last week, governments face a dilemma between the measures needed to contain the spread of the virus as quickly and effectively as possible and the risk of killing the economy. No one can answer this question even in a vague manner, as the biological phenomenon is so unpredictable. The measures decided this weekend by the Conti government are so radical that one wonders whether Rome is not trying to kill two birds with one stone. Indeed, Italy could both contain the epidemic and break the fiscal straitjacket imposed by the European Union, as exceptional circumstances require massive support from macroeconomic policies. This COVID-19 crisis will not be without

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