SWOOSH RECOVERY VS. LIQUIDITY SPLASH
The exit from the lockdowns is proceeding cautiously. If anything the number of new cases globally has picked up over the past week, flirting with 100k on 15 May, the highest since 16 April (see our latest Facts and Figures, including new modelling). Scientists keep warning about the risk of relaxing social distancing too quickly. In the meantime the global economy struggles – we slightly cut our 2020 global growth forecast from -3.5% to -4%.
- While the exit from the lockdown is proceeding cautiously, Covid-19 appears tenacious; the number of new cases globally has slightly picked up over the past week.
- We go back to history and look at the shape of recessions and recoveries. From peak to trough, the US GDP is set to lose at least 13%, vs. “just” 4% through the 2008-09 Great Financial Crisis (Euro area -14% vs -6%).
- The shape of the recovery matters both socially and financially. The ‘swoosh’ recovery does not bode particularly well for cyclicals assets.
- Arguably, unprecedented central bank actions will support elevated equity multiples. The balance sheet of G4 central banks will grow as much this year as between 2008 and 2016.
- The liquidity splash and limited appetite for risk (typical in post-traumatic periods) will support assets offering some yield but a contained risk profile, such as Investment Grade corporate bonds, non-cyclical sectors, growth stocks and residential property..