Induced Coma Flash Update | The Corona Correction | Refinitiv

TL;DR

The government is inducing economic stimulus as countries go into lockdown, leading to significant declines in GDP and joblessness. Market conditions show strain in funding spreads and bonds, while equities continue to search for a bottom. The US dollar faces upside pressure due to a global shutdown in cash flows.

Transcript

good morning it's around about 9:30 UK time on Monday morning and just wanted to come with a quick update on what we're currently seeing and what we think is going to happen over the next kind of next couple of weeks I mean firstly a couple of weeks ago we talked about how the government is going to have to induce komuz in their economies to deal w... Read More

Key Insights

• 🥺 Governments are injecting stimulus into their economies to cope with the impact of the lockdown, leading to significant declines in GDP and joblessness.
• ✈️ Funding spreads and the Ted spread show strains in the financial system, while bonds are affected by flight to safety and deleveraging.
• 🥳 Equities are still searching for a bottom, with the ratio of Nasdaq versus the S&P continuing to rise.
• 🙃 The US dollar is facing upside pressure as cash flows outside the US are dominated by dollars, despite the global shutdown.

Questions & Answers

Q: How much could the US GDP fall in the second quarter?

Some extreme estimates suggest a potential decline of up to 30% in the second quarter. This reflects the severe impact of the lockdown measures on economic activity.

Q: What were the initial jobless claims numbers and how do they compare to past crises?

The medium forecast for initial jobless claims is currently 1.5 million, but there are estimates that range up to 3 million new claims. In comparison, during the 2008-2009 financial crisis, there were around 660,000 initial jobless claims in March 2009.

Q: When can we expect a trading low in the equity market?

The timing of a trading low in the equity market depends on when peak fear is reached, which usually precedes peak infection. While there may be initial moves based on peak fear, the overall long-lasting effects of the pandemic suggest that a true bottom may take several months to materialize.

Q: What is the impact on bond markets?

Bond markets are caught between flight to safety and the deleveraging of rules-based funds. Funding spreads and the Ted spread remain wide, indicating ongoing strain in the financial system. The issuance pressure caused by government spending packages could further affect bond prices.

Summary & Key Takeaways

• Governments are implementing economic stimulus to deal with the impact of the lockdown, which is causing significant declines in GDP and jobless claims.

• Funding spreads and bonds are under pressure, indicating strain in the financial system.

• Equities are still searching for a bottom, with the ratio of Nasdaq versus the S&P continuing to rise.

• The US dollar is facing upside pressure due to a global shutdown in cash flows.