Rates, markets, cryptos... "We are living in an unprecedented situation".

A lot of comments are alarmist about the economic situation. Are you that pessimistic?

Honestly, we've never had so much uncertainty. Whether in economic, health (in China, editor's note), social, geopolitical, energy or even meteorological terms, the situation is very worrying and above all very unclear. The financial markets are still finding it hard to 'predict' things. We know that there will be a global recession in the developed countries - led by Europe and the United States - from the end of 2022, but we still don't know how deep it will be or how long it may last.

To top it all, we are experiencing an unprecedented situation with a negative wealth shock in many countries: equities and bonds have collapsed in recent months, due in particular to the rise in central bank interest rates. So yes, I am rather "pessimistic".

Do you think that the economic situation could push central banks to return to a more accommodative monetary policy?

It is still too early to answer this question. What is certain is that if the US Federal Reserve (Fed) has to backtrack, it won't happen until inflation comes back down, and that's going to take time. In the meantime, central banks - because this is not just about the Fed - can still intervene from time to time. We saw this last week with the Bank of England. And other central banks could follow suit. But we must not lose sight of the fact that inflation has reached such a level that the central banks will not let up until the temperature on prices has subsided.

What level of inflation could be deemed "bearable"

In the United States, inflation is currently at 8.3%. A level of between 3% and 4% could be considered "bearable". According to some estimates, this level could be reached in the second quarter of 2023. So we should not expect a rate cut for another six or nine months, if at all.

The only thing that could push the Fed to act before then would be a fall in core inflation (i.e. inflation from which fluctuating items such as energy and agricultural materials have been removed). The Fed could thus take a break from its hikes.

So we should rule out a recovery in the market for risky assets, such as equities and cryptos, before next year?

It's hard to say, as the market tends to anticipate. Tuesday's very bullish session is symptomatic in this respect: the previous day, the ISM Manufacturing index (US employment and production) raised the spectre of a recession in the US. It was negative news and yet the market reacted well because it believes that the Fed could be pushed to ease its policy...

What happened showed that bad economic news can have a positive effect on the markets. Generally speaking, the market is about six to nine months ahead of the macro.

So it's not out of the question that the markets will bounce back faster than expected?

I think we should continue to see a fairly volatile market with one small specificity all the same: we can feel that a lot of the bad news has been incorporated. They have less impact on the markets than the "good news".

There are still the geopolitical uncertainties. We cannot rule out the possibility that the conflict in Ukraine could get bogged down and that Russia could harden its stance even further. This could have consequences for energy supplies, and therefore de facto for the economy.

You rightly talk about geopolitical uncertainty. What do you think of banking uncertainty at a time when Credit Suisse seems to be experiencing major difficulties?

The banking sector is not immune. After that, you have to bear in mind that everything depends on the nationality of the banks, their size and their difficulties. There may be liquidity or collateral problems...

But with everyone's eyes riveted on the banks since the subprime crisis in 2008, the authorities are vigilant. We also need to distance ourselves from what is sometimes said and wrongly conveyed on social networks.

So we can rule out a 'Lehman Brothers' scenario?

A lot has changed since 2008. We no longer have the same levels of guarantees and risk-taking. Real estate collapsed in 2008 because there was a mountain of variable-rate loans that were, to make matters worse, over-securitised. Today, variable rates are much lower and more widespread in the United States. I wouldn't necessarily say that about the UK market...

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