As the huge economic impact from coronavirus becomes increasingly clear and talk of lifting lockdowns heats up we feature a range of articles on possible market outcomes.
First up, we have recent podcast guest, Phil Suttle, lay out his framework for forecasting US growth. Q2 could see an annualised drop of 30%. Second, credit strategist John Tierney looks at credit spreads to determine whether we are heading for another major default cycle.
Then I take a look at the new knowns and still unknowns in our COVID world. I also take a look at whether COVID deaths are being under-reported.
Finally, gold expert John Butler takes a look at India’s announcement on Sovereign Gold Bonds to help finance its bulging fiscal deficit and the significance this could have for both the financing elsewhere and gold fundamentals.
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As the huge economic impact from coronavirus becomes increasingly clear and talk of lifting lockdowns heats up we feature a range of articles on possible market outcomes.
First up, we have recent podcast guest, Phil Suttle, lay out his framework for forecasting US growth. Q2 could see an annualised drop of 30%. Second, credit strategist John Tierney looks at credit spreads to determine whether we are heading for another major default cycle.
Then I take a look at the new knowns and still unknowns in our COVID world. I also take a look at whether COVID deaths are being under-reported.
Finally, gold expert John Butler takes a look at India’s announcement on Sovereign Gold Bonds to help finance its bulging fiscal deficit and the significance this could have for both the financing elsewhere and gold fundamentals.
Enjoy!
Bilal
A New US Economic Forecast (7 min read) • US forecasts—my own included—have shifted to project a 30%+, saar, slump in Q2.
• Such an extreme decline implies an awful April (look out of the window).
• An H2 rebound remains my central view, helped by better medical conditions and policy.
• The resulting level of public debt (explicit and implicit) will be a drag for years.
This week, I updated my US economic forecast for 2020 and 2021. I have been forecasting the US economy for about 35 years and have never projected such a dramatic view of the next few quarters ahead.
I expect real GDP to have been down 7%q/q, saar, in the quarter just ended; to fall a further 32%q/q, saar, in Q2; to rebound 32%q/q, saar in Q3; and then falter 3.5%q/q, saar in Q4, to end the year down 5.1% (20Q4/19Q4). This volatility would be unprecedented in post-war history…
(Phil Suttle| 16th April, 2020)
Are Credit Spreads Signaling Another Credit Market Bust? (4 min read) The economic fallout from the coronavirus crisis becomes more apparent by the day. Yet equity markets have rallied impressively off March lows, apparently bolstered by some combination of extraordinary Fed policy actions and perhaps faith that the US economy will get back on its pre-virus track by early 2021.
Credit markets have largely followed along, although the view from that angle is somewhat less sanguine – at least as this is written. In the charts below, we look at a long-term (25+ years) perspective and year-to-date performance. The former lens suggests that we are entering another major default cycle. The latter is cloudier but opens up the possibility that current credit spreads are less about defaults and more about overall market volatility…
(John Tierney | 16th April, 2020)
COVID-19 Fog Of War: 3 Knowns, 3 Unknowns (3 min read) US equities capture the mood of investors well. We saw equities collapse 35% over four weeks from late February, then a 25% rally from late March until now. If the collapse reflected the shock of COVID unknowns, then the rally reflects unknowns becoming knowns. The three critical new knowns are:…
(Bilal Hafeez | 16th April, 2020)
Are Deaths Being Under-reported? (1 min read) While the number of COVID cases being reported by countries depends as much on the scale of testing than the level of infections, the number of COVID deaths should be more comparable between countries. After all, whether a country is testing or not, the COVID death would be reported. However, there is a twist, a country has a choice on what to report as the cause of death. Someone who had COVID but also (say) pneumonia could be reported as a COVID death or a pneumonia death…
(Bilal Hafeez | 16th April, 2020)
India’s Sovereign Gold Bonds: An Example For The World To Follow? (4 min read) Earlier this week, India announced it would issue another series of gold-linked bonds. These still represent just a tiny portion of the government’s funding needs, but the move is symbolically important – not only may such bonds eventually play a more meaningful role fulfilling India’s government financing needs, but they may do so for countries, too.
All else unchanged, the issuance of gold-backed securities of any kind, be they bonds, certificates, ETFs, or any other structure, should be positive overall for gold investment demand and, therefore, for the price of gold.
(John Butler | 16th April, 2020)
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)