The shape of things to come

Bounce, Recession or Depression?

As economists, traders, investors, politicians and media pundits talk of economic recovery, many countries have already entered recession. The latest being Japan, the third largest economy in the world. The UK, Germany, France and Italy have all entered technical recessions.

‘V’ or not to ‘V’ ?

The very same ‘analysts’ also spoke of recovery not of recession. The chatter was about the type of recovery even. Whether economies would see a, ‘V’ shaped (a fast bounce bank to normal), a ‘U’ shape, an ‘L’ and a ‘W’. I’m sure you can work out the differences… The truth is that right now nobody has a clue, and your guess is as good as mine. Did the ‘hope’ of a quick recovery bounce the markets. I guess it did – but it hasn’t really helped.

If you look at market behaviour of the last few weeks, stocks rebounded sharply from the March lows only then to hold off on more gains as many ‘pundits’ suggested an instant rebound or a ‘V’ shaped economic recovery – I guess they got that one wrong? This has now become wishful thinking and is not likely to happen.

If I had to stick my neck out and guess, I would suggest it’s more likely to be a ‘W’ shaped recovery and probably lots of them – little bits at a time. But I stress this is a guess and is just my opinion. I know as much (or as little) as the other ‘guys’ out there guessing.

So I suggest we all simply work with and trade what we know – not what we don’t know. Don’t guess! A vaccine, when one arrives, will no doubt pump up market confidence.

Fed said…

Yesterday, Fed chair J Powell, released his thoughts about the U.S. economy in an interview. Two take-away comments from that report were that the Fed still had plenty more ‘ammunition’ and that the U.S. economy won’t recover fully until a vaccine is found. I guess that will possibly mean more stimulus (cheap money) leading to even more debt in the future then?

But, he also reportedly said that, the U.S. economy will not hit depression. The economy might miss depression but I don’t think the people will. Last week the unemployed total in the U.S. reached 39 million and that’s over 20% of its workforce.

European equities

European stocks were all up Monday – FTSE up 80 points in early trade and the DAX up over 200 points. Data appears to demonstrate that coronavirus cases were growing at the slowest rate in months.

Investors tentatively welcome lock down lifting measures. However, markets remain in a see-saw pattern as we simply have no idea what the eventual economic damage will be caused through ‘lock downs’?

Gold

Gold gains ground Monday up over 1.1% climbing to $1760

Short selling in Europe

Regulators in Europe have ended the ban on short selling, which was introduced in March. This move signals a recovery of confidence that the bottom is likely in for equities.

U.S. China dispute over Huawei buying U.S. ‘chips’ hits the headlines. Trade war and tariffs argument continues and it is also reported that some U.S. consumers are refusing to buy ‘made in China’ products. This doesn’t bode well as the U.S. and China need to work together to fix their disputes despite the blame game and differences. That can come later, can’t it? But there is a U.S. election on the horizon…