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Market outlook and Economic Viewpoint

Market outlook and Economic Viewpoint below from Royal London’s perspective just arrived by email today (20/04/2020).

Market outlook, Trevor Greetham, Head Multi Asset Funds, RLAM

“Sustained recovery in markets will probably have to wait until there is more confidence regarding the coronavirus being under control globally, shuttered parts of the world economy are re-opened and consumer confidence rises from its lows as people are allowed to return to work. We expect our Investment Clock model to reflect this situation by moving quickly from disinflationary Reflation, with weak growth and inflation, and to Recovery as global growth recovers. We intend to make full use of our active tactical asset allocation risk budget to add to equity exposure when we judge the time is right.

Our investment process has weathered difficult markets in the past and we added significant value over the 2007-9 Global Financial Crisis. We believe a disciplined and active approach to both risk control and tactical asset allocation will be crucial in portfolios, as markets respond to the current crisis and policy responses being implemented.”

RLAM Economic Viewpoint

Even while the UK has just extended its lockdown, policymakers in a number of countries elsewhere in Europe are starting to ease social distancing measures or are planning to do so in coming weeks. What that means for their economies isn’t completely straightforward, but – taken at face value – allowing more economic activity to take place boosts GDP and employment. However, while policymakers continue to do their best to limit the damage to businesses and households so that the economy can fire up again, the strength of the recovery will – to a large degree – also depend on how confident people are that the virus (and a second wave of lockdowns) is no longer a threat, as well as depending on what is happening in other countries.

In the meantime, a wealth of recent data is making clear how big the challenge is for economic policymakers and how deep this downturn is. Jobless claims numbers in the US remained awful this week, with another week of initial jobless claims above 5 million. Many data series for March and April have now hit record lows or declined by record amounts. This week, that included the biggest one month fall in US industrial production since 1946 and a record plunge in the broad definition US retail sales measure. In China, data this week showed Q1 GDP fell some 9.8% QoQ, awful by any country’s standards, let alone China’s.

Economists do not expect consumer or business behaviour to instantly jump back to what it was once social distancing substantially eases, especially without an effective treatment and or vaccine for COVID-19. China data shows retail sales, for example, lagging the recovery there. The IMF this week forecast that the global economy will shrink by 3% in 2020, i.e. worse than 2009. However, central bank support for the economy, markets and governments has continued to step up over the last week or two, including an important expansion of Federal Reserve facilities. Fiscal packages continue to be announced, France being one of the latest economies with new expanded budget plans. Such policymaker support is essential for prospects of economic activity returning to pre-crisis levels over a few quarters, rather than several years as was the case during the financial crisis.

You can see from Trevor Greetham’s input he is waiting for opportunities to arise as markets recover and refers to the (useful) experience of 2007 to 2009 Global Financial Crisis.

Royal London run a significant proportion of pension assets and are key in the company pension scheme market in particular. Their default investment proposition is strong.

Steve Speed