Market Sentiment Turns Bearish...Looking Ahead Post-Brexit...Apollo CEO Leon Black

[Goldman Sachs]( [BRIEFINGS] February 11, 2020 QuickPoll: Coronavirus Turns Sentiment Bearish—For Now Goldman Sachs clients have turned bearish, with more than two thirds (69%) of those surveyed in the firm's Marquee QuickPoll citing the coronavirus as the most important event of the month. Despite uncertainty over the length and depth of the epidemic, market participants generally expect the hit to economic growth to be short-lived followed by a quick recovery later in the year. Here are some other highlights from the monthly poll: More Fed Rate Cuts? A large majority of participants say they expect no more than one rate cut from the Fed this year. But at the time of the survey, forward interest rate markets were pricing in 50 basis points—or two full cuts—for 2020. “That divergence leads us to wonder what the market is pricing: a high probability of a few cuts, or a low—but increasing—probability of interest rates being cut all the way to zero,” says Oscar Ostlund, who oversees the QuickPoll and is head of New York Market Strats in the Securities Division. Gold Is Losing its Luster. While gold typically serves as a safe haven for investors in times of stress, participants’ bullish sentiment on the asset class has declined since our previous survey in January. Given the correlation between gold and real interest rates, investors may be calling for the end to the real-yield rally that the Fed engineered starting in December 2018. For more information about QuickPoll and Marquee, [reach out to the team](mailto:gs-marquee-sales@ny.email.gs.com?subject=Briefings%20Follow-Up%3A%20Interested%20in%20Learning%20More%20About%20Marquee&body=Briefings%20follow-up%3A%20I%20am%20interested%20in%20learning%20more%20about%20Marquee.). SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=QuickPoll%3A%20Coronavirus%20Turns%20Sentiment%20Bearish%E2%80%94For%20Now&body=) After Brexit, What’s Ahead for Business in Europe? In the wake of the UK’s official exit from the EU on January 31st, the business community has generally responded positively to the greater clarity brought by the event, says Denis Coleman of the Goldman Sachs Investment Banking Division. “The biggest reaction at this point is really relief,” Coleman shares in the latest episode of the Exchanges at Goldman Sachs podcast. “We’ve been living with multiple years of significant uncertainty, not knowing whether it would happen or not, on what basis and when, and a lot of work and preparation has gone into this ultimate decision.” While ambiguity has declined, Coleman notes that it hasn’t disappeared entirely. “Now we know that Brexit will occur—but exactly how it will occur and what will unfold from here remains a bit uncertain for our clients.” In particular, Coleman points to industries with sizable structural ties between continental Europe and the UK, such as the auto sector. “Depending on what the result is in terms of the trade agreement, there remains some uncertainty in the efficiency of supply chain and pricing mechanisms.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=After%20Brexit%2C%20What%E2%80%99s%20Ahead%20for%20Business%20in%20Europe%3F&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpodcasts%2Fepisodes%2F02-07-2020-denis-coleman.html) Talks at GS with Apollo CEO Leon Black Above (L to R): Leon Black of Apollo and Alison Mass of Goldman Sachs Three decades after co-founding Apollo Global Management and growing it into one of the world’s leading investment firms, Chairman and CEO Leon Black remains confident in the future of an often-scrutinized industry. “I am a big believer in the private equity model,” he said in a recent episode of Talks at GS. “If you look at the track record of private equity—whether it's three years, five years, 10 years—it’s produced the best returns, more than debt, than real estate or even venture capital.” As to private equity's impact on the broader economy, Black says: “Given the underfunding of a lot of the pension industry, I think this is really important. [Private equity] is what's helping teachers, firemen, policemen, government workers. I'm very proud of what we do.” While Black remains bullish on the growth of private equity, he noted Apollo’s expansion into other asset classes. “We really wanted to straddle both debt and equity and build up a whole credit platform in addition to pure private equity,” he said. “The credit side has become very, very important—certainly the largest, the fastest growing.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20with%20Apollo%20CEO%20Leon%20Black&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Ftalks-at-gs%2Fleon-black.html) Briefly…on India's Budget and Balancing Act Asia’s third-largest economy released its national budget on February 1, outlining its roadmap for boosting economic performance after several years of slowing growth. We sat down with Goldman Sachs Research’s India Chief Economist Prachi Mishra, who shared her views on the budget announcement. Prachi, what made the budget announcement so important this year, in your view? What were the key issues that policymakers were trying to address? Prachi Mishra: Last year was a difficult year for the Indian economy, which slowed significantly and sharply. Several market participants, for example, were predicting that India was on an inescapable path toward a hard landing. That’s why there was heightened anticipation about this year’s Indian budget. For their part, Indian policymakers had to perform a difficult balancing act between providing a stimulus to boost growth—with very little fiscal flexibility—against a backdrop of high fiscal deficits, falling gross domestic product growth and rising unemployment. What are the key takeaways from the budget plan? Prachi Mishra: While the government’s $428 billion budget lacked a large-scale stimulus program like those we saw in budgets released during the global financial crisis, it outlined a series of measures designed to increase consumption and investment, including a cut in income tax rates, a spending boost to infrastructure and the rural economy, and an increase in bond limits for foreign investors. In our view, it appears policymakers took a calculated risk by maintaining a path to reduce the government’s deficits while at the same time proposing an ambitious spending program. The success of this balancing act will largely depend on one key factor: the execution of the government’s large-scale privatization plan. The government said it would sell stakes in state-owned companies, including one of the country’s largest insurance companies, with the goal of raising 9% of its gross revenues next year from asset sales. The budgeted increase in asset sales can help balance the twin objectives of macroeconomic stability and growth, but whether or not the government can hit its target is a key concern, given it missed its less ambitious goals last year. What the markets are looking for in the coming weeks is a credible program with greater details, along with concrete steps and timelines so they can have more confidence in the government’s privatization plans. What is your outlook for growth this year? Prachi Mishra: The big challenges for the Indian economy continue to be weak private investment, muted monetary transmission and low direct and indirect tax collections. However, we expect the slowdown that began in January 2018 to end soon in response to moderately better global growth, easier domestic financial conditions, increased government spending, improving sentiment and an easing of supply bottlenecks. The main risk to our 2020 and 2021 India outlook is the continued risk aversion and lack of confidence in the domestic financial sector, in addition to global risks. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20Boosting%20India%E2%80%99s%20Growth%20Through%20Privatization&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpages%2Ffrom_briefings_11-Feb-2020.html) Goldman Sachs Media Highlights Bloomberg - February 7 [The Growth of Private Debt Markets]( (6:26) Bloomberg - February 6 [Goldman’s Currie Sees Worst Oil Demand Shock in a Decade]( (4:26) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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