The world economy and Corona
Over the past week, I've tried to present both sides of the Coronavirus story to clients, not just focus on the negatives which most major publications do. I was pleasantly surprised, after reading Jill Margo's article in the AFR.
She told us that: “As of Friday morning, over 104,000 tests had been performed in Australia and 708 cases had been confirmed. And there is comfort from Korea, where no citizen under the age of 29 has been lost to the virus, and only two under 50 have died.”
She also asked us to think about the challenge in a pretty sensible way. “Another way of calming panic may be to contextualise death,” she wrote. “Every death is a tragic loss and in the past month, seven Australians have died from this virus. This figure might cause less anxiety if people knew that in the same time period, more than 13,000 Australians died from other causes.”
European stock markets reacted positively to the combined firepower of monetary and fiscal policies as they lined up to offset the negative economic implications of the Coronavirus containment policies. The world economy is right in the middle of a huge fight to beat the virus and to offset the economic dislocation that comes with social distancing, social isolation and business shutdowns.
Not helping is the procrastination of US lawmakers to get a plan passed and into operation, which seems crazy, with the LA Times saying 18% of workers surveyed have lost their jobs or lost hours.
Meanwhile, experts surveyed by politico.com say the proposed and too-slow-coming $1 trillion stimulus package needs to be double that number! “My rule of thumb with a stimulus package is you don’t match the economic damage. That’s not enough,” said Jim Caron of Morgan Stanley Investment Management. “You need to do something on the order of twice that. So something like $1.5 trillion to $2 trillion could be the right number.”
He emphasized the importance of supporting small businesses when confronting these economy-killing threats. “Small and midsize businesses create 65 percent of employment. And consumption is 70 percent of the economy,” he said. “You’ve got to make sure those businesses are still there and people have jobs to go back to. And that means loans and other facilities that make money available to keep these businesses afloat. And that’s at least being discussed and that’s critical.”
Defenders of the package’s size point to the support of the Fed, so let’s hope they are right. Fortunately, locally, the Morrison Government is ramping up the support for SMEs and those who might lose their jobs for a few months. And the banks have been well-recruited to shore up the stimulus program.
Given this, it was no surprise to see our stock market head in the right direction on Friday but it’s still early days in the process of building a bottom out of which a strong stock price rebound is likely, when infection and death rates in Europe and the USA are detected.
I think the market collectively thinks it has built in a fair degree of insurance via the current sell off and now there’s a watching brief to see if more selling is needed or that the time to buy has arrived.
New York Life Investments’ Lauren Goodwin nailed it on CNBC with the following:“Market volatility will persist until the government – fiscal or monetary – provides a backstop to stressed corporates and small & medium businesses,” she said. “Support of those functions is vital to ensuring the economic disruption of Covid-19, though severe, is temporary.”
The Yanks and how they contain the virus is a huge watch over the next couple of weeks and the Governor of New York, Andrew Cuomo, has told 100% of workers in non-essential businesses to work from home! You can see what negative economic effects that is bound to have, however, it’s a big step to reduce the impact/progress of the virus.
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Sources: The Switzer Report