Macro Update 23 March 2020

The full scale of the economic impact is now being understood.

Steven Bell

Managing Director, Portfolio Manager & Chief Economist, Multi Asset Solutions

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Risk Disclaimer 

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

  • A lot has happened since my video a week ago – massive spread of the virus, massive government action and massive fiscal action from central banks. The epicentre is now in Europe, predominantly Italy, with acute problems also in France, Spain and Germany. Lockdowns in other countries – notably the UK – have only just started. The US is ramping up testing this week so there is likely to be a big jump in the number of cases there.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

 
  • The full scale of the economic impact is now being understood. We are talking about a major recession as a direct result of government policies to contain the virus. I would expect declines in GDP in the second quarter of around 10% or more. Bigger at this stage than the Global Financial Crisis (GFC).
  • Corporate earnings will suffer drastic declines, and key economic indicators, such as the Purchasing Managers’ Indices are released this week and are likely to collapse to levels never seen before. In the US, unemployment claims will skyrocket, with forecasters predicting anywhere between 1 or 4 million; for comparison these peaked at just 700,000 in the GFC.
  • Asian economies are returning to something approaching normal, and Europe should follow. The UK government has announced unprecedented measures, and so has Germany. But to be clear these measures will do no more that blunt the blow to economies and families.
  • What does this mean for markets? I said last week that we were approaching the lows in terms of time and levels. I think this week will see a decent rally. In part this is technical – factors that led to forced selling in recent weeks have dissipated and institutions are now buying equities to restore allocation targets in balanced portfolios. We won’t get a smooth recovery, rallies within bear markets are common. But we may have passed the lows or something close to that.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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