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Vantage Point: Pandemic

The world has seen the emergence of a novel coronavirus that has infected large numbers of people in China and the rest of the world. This edition is devoted to trying to work out what the economic impact might be, and for how long it will continue.

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Weekly Market Roundup

March 30, 2020

Start your week off right with our market snapshot from the Global Economics and Investment Analysis Group.

WHAT HAPPENED

Global stocks bounced 10% this week after suffering the biggest weekly pullback since October 2008 last week.
Monetary policy response is seen as one of the more credible tailwinds with the Fed announcing unlimited and expanded QE and new facilities to support corporate credit.
Fiscal policy response was another bright spot with ~$2 trillion support package that White House said that when combined with Fed leverage, could unleash $6 trillion stimulus, or ~30% of annual GDP.
Developed markets gained by +10.7% (-14.5% MTD) while emerging markets gained by +5.0% (-16.0% MTD).
In the US, small caps led the gains (+11.7%), outperforming large caps (+10.3%).
In US credit, high yield spreads were down by -92 bp while IG spreads were down by -68 bp.
Global sovereign bonds continued to gain (US Treasury 2-year yield at 0.24%, 10-year at 0.67%).
US dollar lost by -4.3% against major currencies and is up +2.1% YTD.
US jobless claims surged to record 3.28 million last week (more than quadruple the previous record high of 695K in 1982) as businesses laid off workers amid the coronavirus pandemic.
This week saw another exodus from bond funds and rush into cash. A record $109 billion was pulled from bonds, bringing the two-week total to $218 billion. IG bond funds saw their largest outflows on record of $61.2 billion. HY bond funds saw their fifth straight week of outflows. The week-ended 25 March also saw the second largest EM bond fund outflows on record of $17.1 billion, along with $6.4 billion of outflows from MBS, the largest ever. Even Treasury bond funds saw outflows of $3.7 billion, the eighth-largest on record. At the same time, a record $234.6 billion went into money market funds.
Fed balance sheet swelled to more than $5 trillion for the first time following recent market interventions. Fed Chair Powell vowed central bank would step in "aggressively and forthrightly" if it sees no credit flowing. Emergency lending facilities stand to increase in size after Treasury gets more money to back the loans from the coronavirus rescue package.
China closed borders to prevent another coronavirus outbreak.
China January-February industrial profits fell 38.3% y/y, following a 6.3% decline in December, and compares with a 14.0% decrease in the year-ago period.

WHAT'S AHEAD

Germany CPI (Monday)
Eurozone Consumer Confidence (Monday)
US Consumer Confidence (Tuesday)
Eurozone Unemployment Rate (Wednesday)
US ISM Manufacturing (Wednesday)
US Factory Orders (Thursday)
US Hourly Earnings, Unemployment Rate, Nonfarm Payrolls, ISM Non Manufacturing (Friday)

VIEW SNAPSHOT

Monthly Market Roundup

February 2020

Risk off to Start 2020

Markets started the year on a risk-off mode as unprecedented efforts to contain the spread of the coronavirus weighed on extended markets.
As investors began to shave expectations for China and 2020 global growth, global stocks lost -1.1% in January led by a -4.7% decline in emerging markets.
Credit spreads widened and safe haven assets gained on the heightened risk aversion as 10-year US Treasuries fell 41 bp, gold advanced 3.8% and the USD increased 1.0%.
Even as we expect a one to two quarter hit to China, and, to a lesser extent global growth, progress on trade talks, easier financial conditions, and a healthy US consumer have led to an uptick in economic activity and we do not anticipate a sustained impact on growth.
Our key outlook of stabilizing and modestly improving global growth remains intact.
Nevertheless we remain flexible given the uncertainty and unpredictability in forecasting how the unprecedented efforts to contain the spread of the virus will play out and believe that risks are to the downside.

Find out more

Monthly Market Roundup Podcast
Presented by Lale Akoner,
Market Strategist

January 2020

Global stocks gained another 3.6% in December, finishing the year up 27.3% for the best annual return since 2009 as markets signaled optimism over the 2020 outlook.

Strong Finish to 2019
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Monthly Market Roundup Podcast
Presented by Lale Akoner, Market Strategist

December 2019

Global stocks had the best November performance since 2009, on increased investor risk appetite pricing in a rebound of the global economy and perception of decreased geopolitical risk.

Looking Better
DOWNLOAD THE ROUNDUP

Monthly Market Roundup Podcast
Presented by Lale Akoner, Market Strategist

Monthly Market Roundup - February 2020

Monthly Market Roundup - January 2020

Monthly Market Roundup - December 2019

Points of View

What’s priced into markets?

Government Bonds: Why we expect yields to edge higher…

Our forecasts for yields still imply a market that is too pessimistic and lowered its estimates too far. Hence, we see a higher probability of an upward drift in yields as growth stabilizes in 2020.

U.S. Treasuries: Why we think recession fears are unjustified

Given dramatic moves in risk markets, we provide a brief update of what we think markets are currently pricing in along with implications for investing.