Market participants will be glad to see the quarter end on Tuesday, that’s for sure.
Almost all major equity gauges posted outsized losses in Q1, although a smattering of rallies over the past several sessions helped cushion the blow, as did wave after wave of central bank action in March.
European stocks were tracking for one of their worst quarters in history.
The rub is: Next quarter will surely be worse economically, if not for risk assets, although maybe that too.
“Today is the end of the first quarter of 2020. And no one could be faulted for saying ‘good riddance'”, former trader Richard Breslow wrote. “It’s been miserable on so many levels. In fact, it’s probably safe to say, most people are already looking forward to bidding goodbye to the second quarter”.
The dollar gained for a second day, as currencies tracked month- and quarter-end flows.
The economic outlook seems to get darker by the day – at least if you go by the evolution of forecasts. Goldman – which shocked earlier this month with what, by now, seems like a somewhat “pedestrian” call for a 24% contraction in the US economy in Q2 – has revised their forecast.
“We are making further significant adjustments to our GDP and employment estimates”, Jan Hatzius says. “We now forecast real GDP growth of -9% in Q1 and -34% in Q2 in QoQ annualized terms’. That’s down sharply from -6% and -24% previously.
The bank sees the unemployment rate spiking to 15% by midyear.
The good news is, Hatzius sees a stronger rebound in Q3 – 19% versus the previously expected 12%. “Our estimates imply that a bit more than half of the near-term output decline is made up by yearend”.
Still, 2020 is going to be abysmal. Real GDP will fall 6.2% this year on an annual-average basis, Goldman now projects. The bank previously said that figure would be 3.7%.
This of course comes as Donald Trump extended social distancing guidelines to the end of April and said (on Sunday) that the economy likely won’t start to heat back up in earnest until June 1.
“The better you do, the faster this whole nightmare will end”, Trump said. “We can expect that by June 1, we will be well on our way to recovery, we think by June 1. A lot of great things will be happening”.
Even that may prove optimistic. And he apparently knows it. The White House and Congress are already pondering a fourth set of stimulus measures.
Meanwhile, in Russia, efforts to contain a coronavirus outbreak in Moscow took a turn for the dystopian. Residents of the city will now need to apply for a QR code from city hall every time they intend to leave their homes. That’s according to Kommersant citing a government presentation on the proposal and a pair of unnamed officials.
That QR code will be necessary to go to the store, walk pets and even to take out the garbage. Those caught outside without a code are subject to being escorted home by the police.
“It’s enough to make you go crazy”, a 48-year-old woman named Nadezhda told The Guardian while sitting by the front door to her apartment building.”I’d barely heard of coronavirus [until this month], and now we’re going to spend the next month climbing the walls at home. Nobody was prepared for this”.
Hard to imagine the negative economic impact of this will be over by June 30. If the US death rate is now being estimated at .0066%– and US government is estimating 100,000 US deaths, if you do the math, this implies that only 5% of Americans will have been infected. How does economy go back to growth under this scenario? Hopefully, my math is incorrect.
In other news, CDC is reevaluating their previously published position that masks are not necessary– looks like CDC is moving to “wear a mask”.
Finally, Austria has instituted draconian measures- shoppers are limited to 12 bottles of wine and 2 cases of beer/2 liters of alcohol – per visit.
.66% ( multiplier is .0066)
The idea this is “over” by June is somewhere between laughable and insane. What precisely would materially change between now and June? If we get it under control in May, relaxing social distancing would simply light the fuse all over again. Without a vaccine we are in this for the foreseeable future. Given we’ve never had a Coronavirus vaccine and we cannot use Flu Vaccine techniques to make one a moonshot, hole in one would probably take 18 months. Stick a fork in 2020, it’s done. International Travel is likely to see restrictions for years.
Keep in mind, a vaccine is not the only salve for this situation. If an effective drug treatment regime was developed, the serious illness cases (20% total – 1-4% death rate for all cases) could be addressed right away. One reason a vaccine takes longer is that the hurdle for using it is higher- it is given more broadly and to healthy people. A drug treatment can be used more quickly, especially in life threatening cases because of the limited downside (the person is at risk of dying anyway). The hurdle to try is lower and therefore can be tested and used more quickly. If an effective drug treatment or other treatement was developed, we could go back to a more normal type of existence, since the 80% of cases could be risked- and the serious cases could get treatment. In an ideal world we would get this treatment which would give us time to develop a vaccine in 1-2 years (fingers crossed). Without a treatment regime, we will eventually have to rely on herd immunity developing- not a great prospect and this will lead to continued restrictions.
Day by day, I’m becoming much more optimistic about conquering Covid-19. It’s the catastrophe on Main Street that depresses me. Wall street is taking care of itself, but there is no way that the Fed or the government can support the 28 million small businesses that provide the services and the bulk of U.S. employment.