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As markets continue to tumble, central banks are rushing to ease a global credit crunch, signaling material risks to growth, liquidity and markets. What say the banks?

The Federal Reserve led the way with an emergency move to cut rates to near-zero alongside a $700 billion quantitive easing program. The Bank of Japan followed with announced asset-purchasing plans and the Reserve Bank of Australia made commitments to take similar action when needed. 

With central banks rushing to inject liquidity – signaling a further escalation of perceived risks following historic-lows in markets last week – the proverbial «falling knife» may be at play for investors that are not ready to be sidelined. What say the banks? 

BNP Paribas Wealth Management: 3 Black Swans? 

According to Hong Kong chief investment officer Grace Tam, the bank’s base case assumption is for a U-shaped recovery following two black swan events (WHO pandemic declaration and oil price war) which includes two Fed rate hikes in December and March that will lead 10-year Treasury yields back up to 1.25 percent.  

In her weekly podcast, Tam also shared the bank’s forecast for global equities to return to the 200-day moving average in the second half and maybe even previous highs by year-end. A continued oil price war is expected to continue pressuring brent to around $30 before demand recovery and U.S. production cuts push it back to $45-55 per barrel. 

Despite the optimism, the bank does not rule out a worst-case scenario triggered by a third black swan – a credit crunch, a new wave of coronavirus infections in China or lack of fiscal stimulus. In this scenario, BNP Paribas Wealth Management expects equity markets to shave another 10-20 percent while safe havens such as gold and U.S. Treasuries will shine.