Who will pay for the banquet? Goldman Sachs estimates that $ 3 trillion worth of Treasury bonds will be required to fund USC approved relief packages for coronavirus companies, households, and local governments. The main buyer of these securities will be the Fed, which has committed to purchase an unlimited amount of treasuries. Such an intervention is fraught with a significant distortion of asset prices, however, representatives of the Federal Reserve have their own views on things. According to the President of the Federal Reserve Bank of Cleveland Loretta Mester, the central bank is working to ensure that the markets function normally, and does not set the task of regulating prices. The markets were completely destroyed and malfunctioning, and the Fed had to do everything possible so that they came to their senses.
US Debt Buyers
Source: Financial Times.
Serious wounds leave scars. As much as Donald Trump does not want to receive an explosive recovery of the US economy after defeating the pandemic, the reality is likely to be different. According to the head of the Federal Reserve Bank of Minneapolis Neil Kashkari, the road ahead is long and uneven. From time to time, parts of the American economy will shut down and restart. V-shaped repair is unlikely.
One of the scars may be a lower risk appetite for young investors. As the events of 1929, 1974 and 2000 show, it took a long time for the S&P 500 to completely eliminate its losses. Over the years after the crisis, the proportion of stocks in portfolios has declined, as has investor interest in risky projects, including opening their own business.
S&P 500 recovery after recessions
Source: Wall Street Journal.
The current recession promises to be the deepest since the great depression of the 1930s. This is evidenced by the leading Brookings-FT indicator or the Tiger Index, which compares the real activity of financial markets and investor confidence with their historical averages. The IMF is most likely to mark gloomy estimates, whose forecast for global GDP is one of the most interesting events of the week by April 17th. The managing director of a reputable organization, Kristalina Georgieva, said that in 2020, 170 out of 189 countries will suffer from a reduction in per capita gross domestic product. This crisis knows no boundaries, everyone is in pain.
Tiger Index Dynamics
Source: Financial Times.
How will the American dollar and S&P 500 react to gloomy forecasts of the International Monetary Fund? It is hard to imagine that the US stock indexes continued to grow as fast as in the week of April 10th. Such “bullish” drivers as increasing the Fed lending programs to $ 2.3 trillion and hopes for a reduction in oil production have already been won back; moreover, investors doubt that the commitments made by OPEC + will be enough to stabilize the black gold market. On the other hand, an improvement in the epidemiological situation may support share buyers and EUR / USD. Euro bulls do not give up hopes to storm the resistance at $ 1.0965, but they need a fresh driver to continue the rally.
LiteForex Analyst Source
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