We have a bumper edition this week – with six reports. US rates guru, George Goncalves, lays out the good, the bad, and the ugly scenarios in the COVID era. Macro thinker Dominique Dwor-Frecaut follows up on White House Task Force’s estimates on likely COVID deaths with her own estimates.
I take a look at inflation – many are calling for higher inflation, but I argue that in the near-term we could see disinflation. EM economist Caroline Grady looks at why despite China’s domestic-led growth model its economy is neither a safe haven from the pronounced weakness elsewhere in the world, nor a saviour for global growth.
Credit strategist, John Tierney, analyses the impact of share buybacks and whether it makes sense for politicians to target them. Then following on from our last podcast, where we talked about the risks around public pensions, we feature an excellent piece from pensions and muni expert, Natalie Cohen. She looks at public pensions exposure to illiquid assets.
And finally, for our COVID tracker today we take a closer look at developing countries where Iran, Israel, Czech Republic and Turkey currently stand out as being badly affected.
Exploring COVID-19 Scenarios And US Market Implications (5 min read) US equities just finished their worst first-quarter performance in history only to be met with the worst first-day start of a new quarter. 2020 started off with a bang as stocks melted up to new highs, but the rest of the quarter felt like an eternity with multiple days of limit-down moves amid elevated volatility. In addition, we saw high cross-market correlation eliminate places to run for shelter (other than cash). Meanwhile, central banks have been working around the clock to keep things from further coming unglued…
(George Goncalves | 2nd April, 2020)
How Many COVID Deaths Could The US See? (4 min read) The White House Coronavirus task force briefing on 31 March followed the cardinal rule of successful market strategists: provide a number or a date, but never both. The task force predicted 100,000-240,000 deaths related to COVID-19 and explained that the high number reflected an absence of mitigation, that it did not “accept” the 100,000 number, and that it would do its best to keep deaths below that. It also withheld specifics on timeframe other than indicating that infections would peak only in mid-April…
(Dominique Dwor-Frecaut | 2nd April, 2020)
Are We Underestimating Disinflation? (2 min read) Despite many headline-grabbing downward revisions to US growth, most economists are not expecting inflation to fall by much. The consensus for core PCE is for a decline from 1.8% YoY in Q1 to 1.7% in Q2 and Q3 and back to 1.8% from Q4 onwards. These have been revised down from earlier, but the trend is still up. Even the most bearish banks on growth have core inflation only going down to 1.4%, which is the range of the last few years…
(Bilal Hafeez | 2nd April, 2020)
Why China Cannot Decouple From A Global Recession (3 min read) While much of the world is in freefall, activity in China is rebounding. This disconnect looks set to continue for now, with new cases of COVID-19 in China fairly small and its economy gradually reopening. By contrast, case counts are sharply rising and lockdowns occurring in many of the world’s largest economies. But far from being insulated from a global recession, China’s economy remains reliant on global demand, leaving it neither a safe haven nor a saviour for the global economy…
(Caroline Grady | 2nd April, 2020)
Buybacks: A Tempting Target But An Empty Piñata (5 min read) The $2.2 trillion stimulus package signed into law last week (aka the Coronavirus Aid, Relief, Economic Security Act, or CARES) has prompted an outcry from people upset at what appears to be generous provisions for Corporate America. Particular ire has been directed at executive compensation and share buybacks. Accordingly, the final legislation included language limiting dividends, buybacks and increases in executive compensation (although these can be waived on a case-by-case basis)…
(John Tierney | 2nd April, 2020)
Public Pensions May Have More Illiquid Investments Than You Think (3 min read) Recent, dramatic declines in the value of equity markets (and more recently, fixed income) will probably appear in weaker public pension funding ratios as plans begin to disclose their returns.
Certainly, some plans incorporate asset value smoothing, which reduces the year-to-year volatility of gains and losses. However, the Government Accounting Standards Board (GASB) in required public plans to disclose how plan sponsors determine the value of their investments, beginning in 2017, and outlined a three-level hierarchy.
(The corporate Financial Accounting Standards Board (FASB) implemented this approach in 2008, following the collapse of Enron in 2002 stemming from falsified holdings and off-the-books accounting.)…
(Natalie Cohen | 2nd April, 2020)
• Today I take a closer look at developing countries. In terms of developments over the past week, Iran, Israel, Czech Republic and Turkey have seen both a jump in cases and deaths per capita. Israel actually has the highest per capita cases in the developing world – Iran is next followed by Czech (see later section on EM). However, in terms of deaths per capita, Iran is the highest and much higher than any other EM country.
• The next set of countries that have seen large weekly changes is Chile, UAE, Poland, Malaysia, Brazil and Hungary. They have seen some combination of a jump in cases or deaths over the past week
(Bilal Hafeez | 2nd April, 2020)
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