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Investment input hot off the press from Royal London Asset Management this afternoon (06/04/2020):

RLAM Economic Viewpoint

Although there has been some encouraging news from countries where the growth in new cases has been slowing, it is clear from incoming case numbers that we are still some way off being able to contemplate easing social distancing measures in Europe, let alone the US. In the meantime, therefore, levels of economic activity remain well below pre-crisis norms.

Data has underscored the challenge facing policymakers. Over the week, the latest US weekly initial jobless claims number showed another a record jump of more than 6 million. Benefit claims have risen sharply in the UK too and incoming March survey data reflects a large hit to business activity and confidence in Europe and the US.

Economic activity data in China has improved as social distancing measures have eased and March business surveys show significant improvement. However, business surveys generally ask firms whether activity has increased or decreased, not by much. That is important in the current context where the level of economic activity is likely still significantly below pre-crisis levels. Export-related components of the surveys still signal contraction, consistent with weak global demand now holding back China’s recovery.

Meanwhile reminders that things aren’t normal, and that social easing can’t be unwound in one easy move while there is reinfection risk, came in the shape of some reversals of social easing (e.g. cinemas shutting again and lockdown being re-imposed in Jia county). In the US unemployment numbers this week highlight the scale of the challenge policymakers face in trying to limit the long-term economic damage from this crisis.

The good news is that policymakers globally continue to step up and introduce measures that improve the likelihood of economic activity being able to pick up robustly once social distancing measures ease. Again, we’ve seen measures designed to keep the financial system working (e.g. Fed’s announcement this week of a repo facility for overseas central banks), limit damage to household finances (e.g. the direct wage subsidy scheme announced by Australia at the start of the week) and keep viable businesses afloat. Other highlights included a 50bps rate cut in Canada late last Friday and a policy easing message from Chinese authorities.

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Steve Speed