What has occurred since yesterday ?
Bull movement. Prices of risky asset classes, e.g. equity increased. Of course the question remains if it is just a short, technical upward spurt or a stable base.
The reason for the better mood in the market is the agreement in the USA on a USD 2000 billion stimulus package. The formal approval of Congress is still needed, but hopefully just a formality.
Just the fact that this package was agreed upon underlines the severity of the crisis. The difference of opinion between the Democratic and the Republican parties over the last years has led to political gridlock. The announcement of the details to the agreement are still to come. However, elements e.g. a longer time period to receive unemployment benefits, loan guarantees and direct support payments seem to be included.
Large support packages are indeed necessary. The economic data over the next months will be very negative. Yesterday important economic early indicators for the month of March were published. The so called PMI (Purchase Manager Index) for important economies like Japan, Germany and the USA plunged as expected. The economic indicators for China dropped strongly already in February. The total of indicators show a strong sign that a global recession has started already in February 2020.
When will the recession end?
There is one decisive factor: the loosening of the containment measures. To guarantee that the decline in economic activity will be significant, but at the same time also short large support packages from the central banks and fiscal stimulus packages from the finance ministers are necessary.
The confidence for a bottoming out has somewhat increased. The uncertainties remain on an elevated level. The core strategy for our portfolios was to keep a certain cash quota, but to stay invested to a certain degree. Not only equity were under pressure until recently.
But also prices of investment grad government bonds experience strong volatility. The market liquidity was low. We see first signs of a stabilization.
Our dossier on coronavirus with analyses: https://blog.en.erste-am.com/dossier/coronavirus/
Prognoses are no reliable indicator for future performance.