Warnings on the Economic Recession to Rattle Stubborn Bulls

Posted by James Hughes -
Scope Markets


Severe economic recession is something many economies are waiting for. This week, finance ministers from around the world reinforced it. The voices of doom were of the US treasury secretary Steve Mnuchin, Fed Chairman Powell, and UK Chancellor of the Exchequer Rishi Sunak. They all tried to prepare the public for the inevitable disappointment of a long drawn out recession.

Tuesday saw Sunak and Mnuchin offer stark warnings on the state of the global economy post-pandemic. Both finance ministers spoke of the long-term economic impacts that the global lockdown would have on the economy. Both Mnuchin and Fed Chairman Jerome Powell calling for more stimulus.

Appearing via video link in front of the Senate Banking Committee, Powell and Mnuchin warned on jobs and the economy. Mnuchin stated that the ongoing lockdown risks permanent damage to the economy. This echoed the calls from Sunak in the UK who warned of damages to the economy after the UK jobs data.

Kenyan Warnings Remain for an Economic Recession

Kenya has seen its warnings over the last few weeks. Signs pointed out that the GDP could fall. The most aggressive estimates showed a contraction of -1% due to the COVID-19 pandemic. Only in February the world bank forecast 6% growth for Kenya in 2020.

Of course, Kenya is not an isolated case. Still, their warnings about the economy have led to the World Bank approval of a $1 billion budget support operation. This should help government schemes to increase affordable housing and support farmers’ incomes who were hit hard by the pandemic.

The week of warnings continued as the World Bank yet again warned of an unprecedented shock to the global economy. The measures should help low-income families. The stark reality of this pandemic is that it is the poorest are at more risk of dying from COVID-19. The aid is to help the rebuilding the Kenyan economy post-pandemic. What will be key revolves around maintaining the work already done to reduce the poverty gap. This financial package drastically helps that cause.

Markets Still Finding the Positives

The warnings show that yet again, we should be cautious of any significant upside in global stock markets. Currently, markets are rallying on the prospect of a vaccine. A vaccine could be the only way the global economy recovers quickly. Without a vaccine, the social distancing could have an equally as damaging effect on the economy as lockdown and curfew.

Global stock markets have reached a key inflexion point which has led to indecision in. The S&P500 and Dow Jones both sit at key resistance levels. If breached it has the potential to see Wall Street indices recover fully from the height of the pandemic lows. This will be consistent with the way markets are performing and the focus of investors. Instead of focussing on the impending economic recession, there is still the positivity that surrounds possible vaccines.

There are signs that investors are a little more cautious around the consistent buying of stock market indices. Data from Scope Markets trading floor shows that clients are no longer betting on a V-shaped recovery. The data shows that many clients are now short of these indices rather than long.

Fed’s Chairman mentioned the obsession with applying a letter to the economic and stock market recovery on Tuesday. He yet again reiterated that it’s impossible to tell.

But the “shape” this recovery will take is nevertheless a concern for many traders, especially given the market’s recent rally. And these letters are, after all, the simplest way for many people who are looking for jobs or understanding when their business will reopen to try and understand what the incredibly uncertain future might look like.

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