30 March - updates from our investment partners

30 march updates
  • 30th March 2020

The global growth rate in new cases has now dipped below 10 percent which is a meaningful slowing compared to a week ago.

What has happened

Markets have finally received what they wanted from US lawmakers. The House of Representatives passed the $2trn package providing direct fiscal support to citizens and businesses impacted by the economic fallout from coronavirus. This will undoubtedly be taken positively by markets though a lot of the good news was already in the price after the strong rally we saw last week. The theme of the last fortnight has been increasingly dramatic intervention by governments and central banks globally. Our expectation is that this will now take a pause for the short term and markets therefore will take their tone from two factors: estimates over the expected duration of the coronavirus lockdowns and economic data that hints at how much activity has stopped.

What is the latest on the virus

The global growth rate in new cases has now dipped below 10 percent which is a meaningful slowing compared to a week ago. The main reason for this is that new case growth in the US has started to move lower and Italy, one of the hardest hit European nations has moved to just above 5% daily growth. The main thing markets are trying to wrestle with is how long will this virus restrain economic activity. If it is temporary, investors will be happy to look through the very poor data in the interim. Alongside new case growth the progress on large-scale coronavirus antibody testing may also prove key. Germany is set to launch this with the aim of understanding how far the virus has already spread and therefore what level of immunity currently exists in the population. If these tests prove accurate and hint at wider immunity, the timeline for some restarting of paused economic activity could be brought forward dramatically as immune employees return to work.

What does Brooks Macdonald think

We expect to see extensive weakness in economic data sets as they are released over the coming weeks. The US initial jobless claims showed how dramatically the brakes have been put on in some sectors of the economy. This is unlikely to be unique so expect many headlines announcing the ‘worst reading since data collection began’. The more positive aspect is that this is what the markets are expecting and a good deal of this is already in the price. The main question is how long this will continue. Expectations are for the brunt of the slowdown to occur in Q1 and Q2 of 2020 however should this extend market sentiment could turn negative again. This is why new case growth slowing, and any success in antibody testing, is so critical for near term optimism.

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