Dire Growth Estimates Dominate Globe

Dire Growth Estimates Dominate Globe

How does this work out for you as a sobering call?

JP Morgan is changing its growth forecasts. Now see US Q1 GDP at -4%, and Q2 GDP at -14% – in China. Q2 -41%, Europe Q2 GDP at -22% and the UK at 30%

Unemployment Spike

JPM sees US unemployment rising to 6.25 percent, only by mid-year (now at 3.5 percent). That will be much higher than yesterday’s claim by US Treasury Secretary Mnuchin’s 20 percent non-stimulus US unemployment.

Economists, the market, and the people all lacked a strong dose of realism. They underestimated the virus’s effect from day one and the hit to demand, not just supply. (From shutting down cities (financial centers) to encouraging isolation).

Not to mention healthcare that’s already putting a heroic effort into it.

This will kill small and medium-sized businesses internationally. It will cause massive job losses, and the wash-up is that this will be much worse than the GFC and central banks are unable to stop the crash.


The U.S. Senate passed the Phase 2 Stimulus, and we will see Phase 3 being voted on this weekend. It’s a great start, with the next $1.2t bill in the works, and there will be much more. By the time we see a recovery, that’s going to happen. The fiscal response will ultimately be 3, maybe 4 times that figure.

We were worried about the US running a fiscal deficit before. Try to look at it at $4t.

The truth is, you forget about deficits in times of war. Olivier Blanchard (ex-head economists at the IMF) described this as a “quasi-war,” and we should think about deficits another time.

The markets have created a liquidity vacuum, with talks of lockdowns in London and New York, the two major financial hubs.

Liquidity has already been shot to bits, and the major players have been fighting to get out of positions of any size. Now, there’s limitations to trading desks’ perception/reality, and WFH staff is forcing traders to leave all – money market funds/cash is king.

Although some are buying in to close, the markets have been liquidated, and I think a tweet from Larry Kudlow aided this. He stated that the government might take positions of equity to help fight the economic impact. Yes, that could be huge, but it won’t shoo the virus away.

Bond Yields

The wash-up is higher in bond yields (UST 10s + 17bp), yet lower for oil, demolishing it (-17 percent – low of $20.08). Gold (-2.2 percent), copper (-6.5 percent), equity (Dow -6.3 percent, low of 18903), EM, and so on.

A lot of attention on GBP (-4 percent) has been trading at the lowest level since 1985, seeing London’s imminent closure, and the pound has behaved as an EM (emerging market) currency or even Bitcoin. It has been smoked even if it’s off an earlier low of 1.1447.


The USD is the story here on the rampage and not taking any prisoners.

The Fed has introduced swap lines to other main central banks to provide quick access to USDs, which has eased USD borrowing costs (USD negative). But the USD goes one way, and it’s all USD buyers here, and that kills EM. These guys have massive USD liabilities/debts, and a stronger USD only makes the pile of debts even bigger.

We clearly can not make a one-way push in the USD as global markets crash, and inflation expectations get smoked.

We are waiting for a new Term Auction Facility rollout in the near-term, which will reduce funding pressures, but we need a more concerted approach to stop this.

AUDUSD trades at 0.5794 (-3.4 percent), being as weak as 0.5702, representing a stronger USD and the fact that EM and industrial metals are being clobbered.

The RBA will announce a rate cut of 25bp at 14:30 AEDT, maybe even to 0 percent, but it doesn’t matter much. They’re going to launch QE, but the market will brush it off because it’s lightweight. In which case, they’re definitely going to sell AUD, even though it doesn’t make sense.

Movements in the markets will have a major effect on the household, which will deter people from investing, contributing to the demand shock.

The truth is dawning now, and it will take years for us to get over this financially. That is before we discuss more widely the sooner-to-be-seen layoffs in the hospitality and services industry.

We need to hope that the govt will keep together the fragile social fabric. This is at least definitely the case in the US.