"Fears of a credit crunch continue to proliferate; European banks and US hedge funds face greatest potential losses in our view. ECB and Fed interventions are well-thought out and reassuring however we stress that the macro environment looks broadly positive.Large swings on relatively new credit indices, essentially liquid investments of an illiquid asset class, have exacerbated fears of contagion to higher quality credits. Three key drivers of the European equity markets are still supportive; Q2 earnings have surprised broadly on the upside; the M&A cycle is driven by corporates, not private equity players; and the global liquidity cycle continues unabated despite the current short-term instability in credit markets. Volatility levels are raised but remain below the May 2006 sell-off and far below levels of the last bear market."
Click here to download the report.
