Covid-19 Capital Markets Update

bull vs bear_covid-19 capital markets

Global capital markets have recovered much of their losses far quicker than anticipated by many, and ahead of any economic revival. On the 10th of March 2020 we began briefing corporates on the impact of Covid-19 on capital markets. This update supports our original analysis. With global stocks recovering as of mid-April, now down less than 20%, we have emerged from a bear market into a V-shape. Even though the Covid crash was unprecedented, all markets exhibit a ‘boom and bust’ trend. Aggressive government intervention, fiscal and monetary, has helped capital markets bounce back. What we have seen since the great depression is that the time it takes for markets to recover is contracting. This supports our forecast that it will take months instead of years for markets to recover from the Covid crash.

Global Markets Future Developments

Global capital markets have recovered much of their losses far quicker than anticipated by many, and ahead of any economic revival. On the 10th of March 2020 we began briefing corporates on the impact of Covid-19 on capital markets. In this update we extend the data to support our original analysis, which you can find in this note. Covid-19’s effect on the global stock markets was unexpected and unforeseen causing a market reaction that had not been experienced since the 2008 financial crisis. However, a cursory review of history shows us markets always overshoot and undershoot and that even liquid markets can be highly volatile. All markets exhibit a ‘boom and bust’ trend as part of their stock market lifecycle. With government monetary policy intervention and the introduction of fiscal stimuli, we forecasted a V-shaped recovery in US, UK and Asian capital markets since the end of March/beginning of April. What we have seen over the years since the great depression is that the actual time it takes for markets to recover to a new all-time high has been contracting.

80%

Global stocks recovered as of mid-April, now down less than 20%, we have emerged from a bear market in a V-shape;

40%

WTI Crude oil prices have improved – currently at $40.7/bbl up from -$2.72/bbl on 20 April 2020;

WTI & Stock Markets

WTI

19 Feb 2020   15 Jul 2020

FTSE 100

19 Feb 2020   15 Jul 2020

DJIA

19 Feb 2020   15 Jul 2020

S&P 500

19 Feb 2020   15 Jul 2020

Fiscal Stimulus Vs. QE (USD bn)

US

Fiscal Stimulus   QE

EU

Fiscal Stimulus   QE

UK

Fiscal Stimulus   QE

Japan

Fiscal Stimulus   QE

Covid-19

Covid-19 has had an unprecedented effect on global stock markets, not seen since the 2008 financial crisis, but its effect on markets has proven to be short lived.

By 20 March 2020 we had entered a bear market with stocks falling more than 20% since the start of this pandemic. The most notable summary of these stock falls is the US Dow Jones index (representing the US’s largest industrial companies), which had recorded a 35% drop since 19 February 2020 (when Italy’s Covid outbreak became market news and made Covid a ‘brand name’).

Over the same period the US’s S&P 500 fell 32%; Nasdaq, the US technology index, and the UK’s leading index the FTSE 100 both contracted by 30%. As of 15 July 2020 compared to 19 Feb 2020 the Nasdaq is up 7% above its Italy pre-virus high, the S&P is 5% below its all-time high, Dow Jones -8%, FTSE 100 -16% and FTSE AIM -10%.

C-19 cases vs deaths

China

Cases  – 85,226

Deaths – 4,642

US

Cases – 3,431,574

Deaths -136,466

UK

Cases – 292,479

Deaths – 40,899

France

Cases – 172,377

Deaths – 30,029

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