Extra Market Commentary
The COVID-19 pandemic and reactions to it among decision makers and market players seem to be entering a new phase. Everyone realises the magnitude of short-term problems, but the focus of attention is gradually shifting to the question of when a recovery will come and how it will look. Despite very serious developments around us, with tragic consequences for many, we are cautiously optimistic about the prospects for economic recovery late in 2020 – with financial markets reacting positively before then, as the outlook becomes clearer.
Read our Extra Market Commentary dated April 7.
SEB's Chief Strategist Johan Javeus summarises the current global coronavirus situation in his latest .
Record number of US initial jobless claims
Late last week, the United States announced a new record number of initial jobless claims: 6.6 million, on top of the 3.3 million people who applied for unemployment compensation the week before. Altogether, this means that about 6% of the American labour force lost their jobs in the past two weeks.
New government stimulus and relief packages
As expected, the Swedish government has unveiled new programmes aimed at helping municipal and regional authorities, bringing total stimulus and relief measures in recent weeks to about SEK 665 billion. This is equivalent to about 13% of gross domestic product (GDP). Most of these measures are still loans and loan guarantees, however. So far, direct grants amount to approximately SEK 100 billion (1.9% of GDP). Although this is a large amount, stimulus measures in Sweden remain relatively small compared to the packages that countries such as Germany and the US have unveiled (for a recent summary, click here).
According to House Speaker Nancy Pelosi, there are plans to appropriate another USD 1 trillion to help sustain the US economy. This new crisis package would increase funding for the various action programmes launched as part of the first USD 2.2 trillion crisis package that was adopted by Congress and signed by the president in late March. It includes new payments to households, broader unemployment insurance and loans to small businesses. The hope is that Congress can approve the new crisis package as early as this month.
Large oil price movements
The price of Brent crude oil climbed from about USD 23/barrel on March 30 to nearly USD 35/barrel on April 3, after US President Donald Trump tweeted that after having talked to Saudi Arabian and Russian leaders, he expected their countries to reduce the supply of oil. Since then, oil prices have lost a few dollars per barrel, after Saudi Arabia and Russia cancelled a planned meeting.
Please follow our Chief Analyst for Commodities, Bjarne Schieldrop, on LinkedIn for insights.
Our market view
Given our main scenario, it will not be a question of whether the economy turns around, but when. And of course it matters what happens before then. As for whether things will get worse before they get better, that remains to be seen. We expect investors to gradually lift their focus of attention from the stimulus measures now being undertaken to their impact on the economy and on growth. We expect a series of dramatically negative macroeconomic statistics in the near term. On the other hand, after the stock market declines of recent weeks, a lot of negative news is already priced into market expectations.
nce developments more clearly suggest that the world will move towards normalisation within a reasonable time period, share prices will probably also have shifted to a more positive trend. But the road ahead is lined with extreme uncertainties. Another common pattern is that after a rapid initial downturn, we see one or more "false starts" before the market rebounds in a lasting way. Obviously it is hard to predict whether it will happen this time around; perhaps investors will choose to see through bad news and focus on the recovery that all the powerful government and central bank actions have led them to hope for.
At present, however, we see clear risks that the weak economic statistics likely to be published over the next few weeks, and continued reports about the spread of the virus, may lead to new share price downturns. But if the light at the end of the tunnel intensifies, such news will probably be regarded as buying opportunities. Remember that some of the most successful long-term investments have often been made when uncertainty was at its greatest: something that is likely to be true this time as well.
Please contact your private banker if you have any questions or concerns