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Best of the Web - May '20

Executive Summary

The global economy continued to be dominated by the impacts of the coronavirus in May, as the pandemic continued to ravage, causing large economic impacts across the planet.

How is the world faring with the impact of lockdowns?

The pandemic continued to grow, with cases continuing to rise to over 5 mn, while the death toll now exceeds 500,000. However, most countries in the west have seen declining cases and deaths, with the outbreak moving to the developing world.

Reopenings result in optimism: With the Western world starting to look at reopening, a sense of optimism is creeping into the global economy. As more and more countries relax restrictions on business, expectations are rising that the outlook for the global economy is looking more positive than before.

Damage might already be done: There are plenty of worries that the economic impact has already been felt, with many businesses too-hard hit to recover. More and more companies are now filing for bankruptcy, especially smaller businesses, and this could mean high unemployment continuing for some time.

Global impact might be worse than expected: While most analysts are still forecasting a powerful recovery in 2021, the outlook for 2020 is starting to look more negative. Both the IMF and the ADB indicated that their expectations for 2020 have soured even further, and that this burden could be felt more by the developing world.

Are there any other risks now?

A possible second wave: China and South Korea have controlled second outbreaks successfully. But with countries in Europe still recording 100s of daily deaths and cases and the US recording numbers in the 1000s, there are worries of a second wave being possible in the months to come. However, there is early indication that these countries would move into surgical measures rather than a second lockdown itself.

Rising US-China tensions: The US and China have also ramped up their rhetoric against each other, pointing fingers as a means of assigning blame for the spread of the outbreak. Rising trade action is a more realistic risk for the global economy, primarily the emerging world, although the US has also threatened sanctions over China’s new laws on Hong Kong.

Additional black swans: The global economy is currently worrying about the direct impacts of the coronavirus outbreak. But there are emerging worries that the financial and social impacts of both the virus and the lockdowns could cause more black swans in the months and years to come, in terms of financial stress from the Fed’s ‘unlimited QE’ action and social unrest from economic harm.

How have commodities been performing?

Oil prices rose gradually:

After supply cuts started coming into effect along with improved outlooks for energy demand, oil prices gradually rose in May, rising from lows of US$ 19.99 per barrel on the 27th of April, to highs of US$ 36.10 per barrel on the 26th of May. However, price gains were still gradual due to uncertainty around future demand .

Gold prices remained high:

Prices of gold were largely flat in May, although prices remained largely above the US$ 1,700 per ounce mark. Prices rose from lows of US$ 1,688.00 per ounce on the 6th of May, before rising to highs of US$ 1,756.30 per ounce on the 15th of May, and remaining around that level for the rest of the month.


Top 5

Global economic outlook still worsening, says IMF

The IMF indicates it will revise its global economic forecasts downward considering the intensified economic impact of the coronavirus. The IMF also acknowledges that emerging markets with sound fundamentals have benefited from easing measures in developed markets, as it fuelled bond purchases

Goldman, Morgan Stanley See Signs World Economy Is Bottoming Out

Economists believe there is evidence the world economy is starting to recover from the coronavirus and the restrictions placed on businesses and consumers. They believe that economic activity might have bottomed out in April for the Euro area and the US.

U.S.-China tensions could become a bigger headwind for the stock market

The rising tensions between Washington and Beijing could become a more persistent headwind for markets, as the issue of China becomes a larger focus in the U.S. presidential election. So far, the war of words between the countries over blame for the coronavirus, the U.S. crackdown on Huawei and now Chinese companies listing on American exchanges have not had a major impact on the Wall Street stocks.

Coronavirus 'could cost global economy $8.8tn' says ADB

The global economy is expected to suffer $5.8-8.8 trillion in losses due to the coronavirus pandemic, Asian Development Bank (ADB) said on Friday. Of this, the impact on south Asian gross domestic product (GDP) will be to the tune of $142-218 billion.

Fed's Powell says US economy may need more policy help to avoid 'prolonged recession'

The Fed says that the US economy may need further stimulus to avoid a prolonged recession. While nearly USD 3 Tn. has already been injected to the economy, the toll of the coronavirus on unemployment and businesses runs deep necessitating policy intervention. Read more -

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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