February was a month with two faces. The first part of the month was terrible for risky assets. At a certain moment it felt like we were reliving the financial crisis of 2008. The already firmly established growth fears were suddenly supplemented with fears over financial stability. The viability of the financial sector was questioned as more and more central banks seemed to be moving towards NIRP (a negative interest rate policy), the Bank of Japan being the latest to join this infamous club.
The fear-mongering didn’t stop there; at some point the mother of all fears started to make ground, namely: Have we reached the point where monetary policy has lost its potency? And just when you thought the market would spiral completely out of control, it stabilized, turning the latter part of February into a much risk-friendlier period.
How firm the footing is remains uncertain. The only comfort we can give is that we do not think that we are on the verge of a recession. We are also starting to get some backing from economic data, the most noticeable one being a firm rebound in US manufacturing ISM, taking it almost back towards the 50 threshold. In line with our fundamental view we haven’t changed our positioning. We continue to prefer risky assets, and high yield is still our preferred one.