Question: How long before we’re back up and running?
Answer: It won’t be May.
The epicenter of Hubei province in China was shut down for two months. Only pharmacies and grocery stories were open. People had to work from home. The rest of China was faced with draconian measures to contain the spread of the new SARS coronavirus. It’s only just now getting back to work. Trains are getting more crowded. What could possibly go wrong?
Hong Kong on Wednesday closed all bars. Want to play mahjong outside? Can’t. Social distancing now in force for fear of a second wave.
Some cities in China that had opened movie theaters have decided to close them again.
The Wimbledon tennis tournament was canceled today. It’s the first time it’s been canceled since World War II.
This is World War C, as Politico writers Renuka Rayasam and Ben White called it on March 18.
The U.S. has gone from maybe 10,000 cases to over 200,000 in a matter of two weeks, though a bulk of that is due to massive testing.
Half of the country is on lockdown. The economy is on hold. It’s all-in to deal a knock-out blow, if that’s even possible, to the deadly virus first discovered in December in Wuhan, Hubei’s capital.
President Trump is recommending more stay-at-home quarantine measures and social distancing for at least the rest of April, maybe longer, he said yesterday.
Markets sold off, as if they thought this was improbable.
Under these existing circumstances of rising death tolls and infection rates, the world economy is in a “stop the world” moment. We need Italy to hit peak coronavirus soon so the existing models can give us a better picture of how this all ends. China’s data is a bit useless. They are now going to include asymptomatic carriers in their totals, which means numbers there will go up, spooking Wall Street, and the locals in China.
The global economy can recover within six months, if countries get a handle on who has the virus and what are the real risks of them spreading it asymptotically.
The global economy can also come out of sick bay if governments provide a massive financial backstop to the demand destruction still unfolding, says Nigel Green, CEO and founder of the deVere Group, a financial advisory with offices in Hong Kong and London.
“No-one knows for sure the full of extent of the impact of the public health emergency on the world economy, but a significant downturn is almost inevitable,” he says. “The signs from countries where lockdown restrictions are now being eased suggest that the economic downturn could be relatively short-lived if certain factors come into play sooner rather than later,” he says, adding mass testing is a key factor to mitigate infection risks.
According a study by the Journal of the American Medical Association, around 6% of those who tested positive for SARS-CoV-2 in Italy exhibited no symptoms at all.
An aggressive mass testing agenda, the likes of which could soon happen in Germany according to reports, would allow potentially millions of people to leave lockdown early, get back to work, and help kick start economies.
“Once mass testing is implemented, we can expect to see supply increase. But what about the other essential factor: demand? Governments need to continue with unprecedented support measures for these unprecedented times,” says Green.
The Fallout
At this point, Wall Street is a terrible gauge for deciphering investor mood on the pandemic. One day it’s up 1,000 points. Next day it’s down 1,000 points. The stock market looks like everyone wants to get on with this, and they do. But most investment firms are not expecting a quick recovery anytime soon.
Surely not in 30 days.
Global equity markets started the second quarter in the red.
“It is highly likely that the U.S. markets may not only test the recent low formed on March 23, but it may break that low,” says Naeem Aslam, chief strategist for AvaTrade in London.
The SPDR S&P 500 was down nearly 4% in early afternoon trading. The iShares MSCI China was down 2.74%. Vanguard’s FTSE Europe ETF was down 3.4%. The iShares MSCI Brazil was down nearly 4%.
Latin America’s largest country is forming a thick swell that will eventually be the biggest coronavirus wave in the region.
For AvaTrade, should the magnitude of today’s sell-off pick up at the same pace as the last quarter, investors could see the major indexes reach new lows by the end of this week.
Just two months ago, the S&P 500 index was at a record high. This is the U.S. stock market’s fastest slide into a bear market since the Great Depression.
Other Great Depression comparisons are reflected in the 3-day rally in the S&P 500 index last week, which was the biggest 3-day rally since 1933, notes Neil MacKinnon, an economist with VTB Capital in London.
Bank of America data showed that last week there saw substantial equity fund inflows by investors, presumably taking advantage of opportunities presented by the 30+% peak-to-trough decline in most equity markets.
“The shutdown in the global economy related to lockdowns and travel bans is now mostly priced in by equity markets,” MacKinnon thinks.
Many economic forecasts are looking for double-digit annualized contractions in real GDP due to the pandemic.
Goldman Sachs expects -34% in the second quarter for the U.S., though that number will surely change in the weeks ahead — for better or for worse.
Most likely for the worse.
In the EU, Italian GDP is expected to contract by 7.5% in 2020 and its government debt-to-GDP ratio could jump to 200%, despite previous efforts in Italy to reduce its budget.
The days of austerity are over and unlikely to make a comeback anytime soon.
On Wednesday, Barclays Capital made a new prediction regarding U.S. labor markets in the time of SARS 2.0. And it’s a disaster.
They expect jobless claims of 5 million for the week ending March 28, up from 3.5 million in the previous week.
This article originally appeared on Forbes.
