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TS Lombard has a 30 year track record in making bold, off consensus-calls at major inflection points in economics, politics and markets. For example, building on our global economic and financial analysis to find imbalances and fragilities, we identified the coming storm of the Global Financial Crisis – identifying the crucial turning point in the cycle and calling the stock market bottom as recovery began.
We are at another inflection point. We are convinced bears, and expect the S&P 500 to fall at least 20% with longer lasting downward pressure. On our analysis stock market bulls are wildly optimistic in pricing earnings returning to ‘normal’. The private sector recovery will be slow, even assuming no resurgence of the virus. Incomes have been hammered. Companies and households have no desire to invest or spend. CapEx is on hold and household savings rates are soaring and will stay high. Our forecast is that the full year 2020 will see US GDP down nearly 4% (still -3% YoY by 2020 Q4) and the EA’s down by 8.5%. World growth will be depressed for years. The recovery from this year’s recession will only get GDP back to 2019 levels by 2022. To access all our research relating to the virus and what it means for growth and asset prices please register for trial access.
Can Europe outperform during America’s COVID-19 secondwave?Europe is having a better crisis than the US, with COVID-19 seemingly under control and the sclerotic labour market preventing mass unemployment. Policy has protected jobs, rather than the income of the jobless. Yet it is questionable whether this will lead to sustained “outperformance”, especially if the crisis requires lasting structural change.
Politics of unemployment to reign COVID-19 and secular stagnation - the next business cycle The 2010s expansion has ended, a “low-nominal” environment dominated by a bad macro policy mix and secular deflationary forces. Breaking out of secular stagnation will not be easy – even with more activist fiscal policy. De-globalization, demographic shifts and technological change will also create a more challenging market backdrop for the 2020s.
Crisis Roadmap: In chartsThe crisis roadmap is our framework for analysing the progress of the global political, economic and market response to the COVID-19 crisis. Our two previous updates (After the false dawn and Miracle cures) marked-to-market the gradual emergence from the crisis in the US and the rest of the world as confirmed case growth has slowed and lockdowns have been eased.
Larry Brainard, chief emerging market economist at TS Lombard, an independent investment research firm, feels that PBOC awareness of shortcomings in China’s financial system and “the recognition that [Chinese] savers matter” have characterised the monetary policy response.
"The still relatively slow improvement in shadow banking activity indicates that credit is not moving fast enough to [small and medium-sized enterprises] and the real economy," Rory Green, China economist at TS Lombard, told S&P Global Market Intelligence.
Other factors have bolstered Chinese stocks, TS Lombard’s Rory Green says, including state media talking about the broader benefits of a “healthy bull market” and three consecutive months of “northbound” inflows—or foreign investors using Hong Kong brokerage firms to invest in mainland China—after a sharp decline in March.
The central bank may want to shrink its balance sheet “once the world gets back to normal”, said Steven Blitz at TS Lombard.
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