The World In A Week – Interim Update

Economic data is likely to become increasingly less reliable as a result of the COVID-19 lockdown.  We know that the effect on the global economy will be bad, we just do not know how bad.  That is why we are seeing significant stimulus packages from governments around the world and why they keep getting bigger.  No sooner has the US announced stimulus package number three, at an impressive $2.2 trillion, there was expectation from politicians for stimulus package number four.

This dichotomy of knowing that the global economy is going to be damaged, but unable to accurately forecast to what extent, is why we have seen volatility in the markets and commitments to soften the blow increasing week-on-week.

Most economic data are survey based: industrial production, unemployment numbers, inflation numbers and various sentiment opinion polls need people to fill in the surveys.  Filling in survey forms during a lockdown may not necessarily be representative of the whole.  Social media spreads fear and affects sentiment and sentiment affects answers to surveys.  Then you have issues such as consumer price inflation, which includes restaurant prices; how do you survey something that is not there?

It is likely that the data we will see coming out for the first quarter of 2020 will not be as reliable as it has been in the past.  Interpolations of annualised numbers should be analysed with a fair degree of scepticism and investment decisions for the short term should not be made on this potentially soft foundation.

Although the extreme fear that was dominating much of March has slightly dissipated, we are still wary of the short-term outlook while in the midst of the virus crisis.  Good news, such as the rumours that President Trump will cut taxes for US companies by suspending trade tariffs for 90 days, will elicit a good reaction from markets.  While reports of increasing infection rates and deaths will provoke a negative reaction.  Clear heads and predictable processes are needed in this phase of the crisis.