As panic continued to spread through the week, volatility across markets ensued; the S&P 500 suffered its largest weekly loss since the GFC last week, having fallen almost 15%. And so far this morning Asian bourses are trading lower, and US equity futures have hit their ’limit down’ levels as the US keenly awaits an update on the proposed stimulus package which was rejected by the Senate. Democrats warned that the current bill does little to support workers and too much to bail out companies.
In what is considered a rare event, Germany will be looking at loosening its purse strings further with the government set to announce an unprecedented EUR156bn fiscal package, roughly 4.5% of GDP. Once approved by the Bundestag, this sum will complement the fund which was set up earlier to provide guarantees and loans and allow the government to purchase company stakes. According to the Handelsblatt newspaper the fund could grow to around EUR600bn. However, a recession in Germany is inevitable, and according to the government’s supplementary budget, Germany’s growth is forecast to shrink by 5% this year.
Clearly we are facing an unprecedented global recession, and as the world goes further into lockdown, economies are expected to suffer even further. The Fed's Bullard for example predicts the US’ employment rate to fall to 30%, with GDP collapsing to -50% in Q2’20. Moreover, the OECD’s secretary general, Angel Gurría this morning warned that the economic impact from coronavirus is already worse than the GFC. He said it is ‘wishful thinking’ to expect economies to bounce back from this event quickly adding that countries will face economic hardship for ‘years to come’. He also highlighted unemployment as a major issue and noted that the increasing debt piles and ever growing deficits will wound economies for many years to come.
We remain comfortable with our current high grade positioning in Wealthy Nations and continue to monitor markets and manage our portfolios through the lockdown across the UK. The team is fully equipped to support our clients.