The overall market sentiment is mixed as new virus cases continue rising throughout the world, but most economic indicators came out better than analysts expected. Let’s look at the main market movements.
JPMorgan’s prospect for V-shaped global recovery
Information is not investment advice
Morgan Stanley analytics forecast the economy will return to pre-crisis levels by the fourth quarter. Here’s why.
What is V-shape recovery?
Economies can recover from recessions in different ways. The V-shaped recovery is just one of them and it’s the best one for any country. It’s called “V” as it resembles a "V" shape in a chart. An economy drops to its lowest point and then bounces back to its normal as soon as causes of the recession pass away. Economic activity will regain as nothing has happened.
Why will V-shaped recovery happen?
JPMorgan’s economists have three reasons to be so confident in the upcoming V-shaped recovery. The first one is recent upside surprises in growth data. US non-farm payrolls, unemployment claims and consumer sentiment turned out much better than analysts anticipated. Also, the Chinese trade balance has beaten all expectations too. The second reason is government measures to support economies. Central banks injected unprecedented amounts of money to stimulate the economic activity and they are not going to ease anytime soon. Finally, the current crisis is not an endogenous shock triggered by huge imbalances. When the coronavirus passes, economies will rebound quickly.
They even take into account developments with the vaccine. In their base case, the second wave of infections will occur in autumn, but it will lead only to selective lockdowns and results will be manageable and a vaccine will broadly be available by summer of 2021. In their bear case, if the world reenters strict lockdowns again, the global economy will experience a double-dip or the W-shaped recovery.
This is the JPMorgan’s forecast in numbers: the global GDP growth will contract by 8.6% year on year in the second quarter and recover to 3.0% by the first quarter of 2021.
Fed’s uncertain outlook
The Fed is not so optimistic about the future recovery as JPMorgan. Last week the Fed warned that the global economy would rebound more slowly than expected. Moreover, the fresh coronavirus outbreak in China and resurgence of new cases all over the world raised fears among investors. The second wave has become the hotly debated topic these days. In addition, analysts from Morgan Stanley mentioned that the increasing debt and deficits may push governments to reduce their massive fiscal stimulus. However, governments aren’t going to do so yet. Follow the news further!
The market sentiment switched to risk-off after the Fed’s Powell statement. The USD edged higher, while risker assets started falling after reaching quite high levels. Let’s have a closer look.
The overall market sentiment is mixed as investors await the Federal Reserve’s statement today at the evening.
The market sentiment is indeed risk-on today. Stocks, riskier currencies and gold are rising amid the waning US dollar.
The US NFP will be published on August 7 at 15:30 MT time.
The RBA will make a rate statement on August 4 at 7:30 MT time.