The long and winding road

The problem with the current situation is that it is hard to know when it will all end.

glass globe

However, with Boris back at the helm and an increasing number of countries taking steps to unwind some of the harsher lock down measures introduced to control the spread of the pandemic, investors are approaching markets with a slightly greater degree of confidence. While we are still well below pre-coronavirus levels, the stock market indices around the world have staged a useful recovery as we look for the way out of our current predicament. And this despite some dire economic predictions.

With economic think tanks predicting the worst global recession in living memory, it is easy to understand why governments are anxious to revert to a business as usual approach as soon as is practical. Even Germany, which stands out in Europe as having managed the outbreak in a controlled fashion, is forecast to see a 6% plus drop in its Gross Domestic Product this year. It is the speed of the recovery that will be most important in driving markets throughout the summer, and that will depend on the absence of a second wave of infections.

Meanwhile, major companies are reporting difficult trading conditions, with BP and HSBC having reported first quarter numbers recently. Earnings for the oil giant were down by two thirds – hardly surprising, given the collapse in the oil price. Europe’s biggest bank fared a little better, seeing profits halve, though they have shelved plans to cut jobs temporarily. Car maker Nissan has also reported that it will fall into a loss, despite expectations of a useful profit last quarter. But with sales of new cars falling by more than 40%, this is only to be expected.

Markets will take comfort from recent developments, though sentiment is likely to remain fragile until there is convincing evidence that this crisis is truly behind us. We have seen considerable ingenuity in dealing with the conditions created by the pandemic, on both a corporate and personal basis, but it will take further initiatives to really clear the way for a sustained recovery. Amongst these will be the introduction of an effective vaccine, better testing facilities and probably the introduction of some form of contact tracing technology. So far as I am concerned, these developments can’t come too soon.

Print this article

More insights

wealth management

The end of the beginning?

The news that our economy took a near 6% hit in March, resulting in a contraction of 2% in Gross Domestic Product for the first quarter of the year,…

Read now