"A form of three-way deal"

With the global economy having the word "recession" in mind, it was urgent that the central banks, the United States and China agree, even if the warning signs of a crisis are still there, says the financial analyst Karl Eychenne, in a tribune at the "World".

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"Since April, the stock markets are no longer rising" (New York Stock Exchange, New York, October 25).
"Since April, the stock markets are no longer rising" (New York Stock Exchange, New York, October 25). BRENDAN MCDERMID / REUTERS

Tribune. The fear of emptiness will have the last word. The US and Chinese authorities succeeded on Friday, October 11, to sign a minimum agreement that is a sign that the two parties could talk without getting angry. The details of this trade agreement are anecdotal and can be summed up by the following formula: We agreed to find an agreement in December. " This sentence has never been spoken, but we are not far from the truth.

It was for the United States and China to gain time, as well as to invite markets to wait with them: a form of three-way deal. The markets seemed to appreciate, as evidenced by the return on assets most sensitive to the economic cycle at the expense of safe haven assets. But, to look at it more closely, it seems that investors have been very restrained. It must be said that this is not the first time that the markets surf on potential deals, finally questioned a few days later. So, are our markets resentful? Too shy? Or is the discomfort deeper? The three.

For more than a year now, equity and credit markets have been surfing on deal and no deal between the United States and China. Thus, the announcement of an upcoming agreement punctually dives markets, before the announcement of its non-realization cool the ardor. To see the performance of equity markets since the beginning of the year, we could say that, ultimately, the anticipation of a deal has won: in fact, these markets are up nearly 20% . But, if you look closely, two important facts validate the thesis of investor resentment:

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On the one hand, 10-year interest rates have fallen by almost 1% since the beginning of the year, which could have justified an almost double increase in equity markets: nearly 40%. Stock markets have not risen so much because they have been chosen: investors have demanded a much higher risk premium to accept risky assets rather than risk-free assets, canceling close half of the favorable effect of the rates.

Grudge and revenge

On the other hand, remember that the grudge goes beyond mere mistrust, it incorporates a form of revenge. The latter would consist of punishing more hard when the risk is realized, and reward less strongly when it does not happen. Now, it seems that this is the case that is observed. Since April, stock markets are no longer rising, alternating phases of violent declines in case of disappointment, with phases of recovery more sluggish in case of reassuring news.


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