Into the unknown

Despite dire warnings of the economic damage being wrought by the pandemic, markets have generally behaved well over recent weeks.

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Indeed, the US NASDAQ index hit successive new all-time highs recently, while the S&P 500 also managed to move into positive territory for the year to date and has recovered by some 40% from the bottom of the bear market. Our domestic indices have fared less well, though have still managed to put the lows plumbed back in March behind them, with the Footsie recovering some 30%.

More recent setbacks seem to represent little more than profit taking, though the suggestion from the OECD that the UK could suffer the greatest fall in economic activity amongst the developed nations did send shivers through markets. The news that the number of workers taking advantage of the governments furlough scheme is nudging towards nine million also highlighted the considerable costs that are mounting up for the government. Debt, both sovereign and corporate, promises to be a big issue in the months and years ahead.

Across the pond, the US has officially moved into recession and the Fed continues to expand its balance sheet at an alarming rate. As it happens, the President’s action or inaction over how best to combat the pandemic has been swept off the front pages by the growing concern over racial inequality. However, the Fed’s downbeat assessment of the prospects for the US economy is weighing on sentiment in the short term.

But not all the news is bad. In China there are signs that some sort of economic recovery is starting to take place, while many countries are now creeping out of the severe lock down conditions that were introduced to combat the onset of Covid-19. Here we are seeing new measures being introduced on a regular basis to help prod the economy into life – not that there is agreement amongst our politicians as to the best way forward. It’s a start and we might reasonably assume that the worst is now behind us, which is not to say that any recovery will be swift or even straightforward.

The bailing out of Cathay Pacific by the Hong Kong government underlines just what a state the airline industry is in. Few expect business travel to return to pre-coronavirus numbers quickly, if at all. Video conferencing may not be a total replacement for face to face meetings, but the cost savings they can deliver will not have gone unnoticed in boardrooms. Determining how best to combat the exceptional circumstances created by this global pandemic is bound to lead to many changes in the way in which we conduct ourselves both personally and in business. Not all change will be bad, but what comes out of this is hard to gauge. The new normal is likely to look very different.

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