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Best of the Web - September '20

Executive Summary

The global economy plodded along in September, continuing to be negatively impacted by the Covid-19 pandemic and its consequences.

How is the world holding up now?

After daily case counts stabilized in August, September saw yet another significant rise in numbers. With upticks in Europe and the US combining with record-breaking numbers in India being the chief drivers. Cases of Covid-19 have now exceeded 30 mn, while the death toll is closing on a million.

India is seeing a large outbreak, and Europe is surging again: India is continuing to see a record number of cases in their first wave, while Europe is seeing a second wave which seems to be more widespread than its first. The US is also seeing an uptick in cases across the country. Global health authorities are starting to worry that the virus is starting to make an autumn comeback, with even worse expectations for the winter.

Unprecedented fiscal and monetary response doesn’t seem to be enough: The US Federal Reserve has indicated interest rates would remain closer to zero until atleast 2023, and there have been trillions of dollars in global fiscal spending. However, with unemployment numbers starting to rise again, it’s starting to look like even this level of stimulus is insufficient.

Financial markets are starting to struggle again: With monetary space being limited and no extra fiscal space in the US, equity markets have started to lose steam. Some analysts are now starting to predict another crash, and the negative impacts are starting to reverberate across the emerging world as well, as fund inflows have slowed down again.

What’s the outlook looking forward?

Economies have done better than expected, but still quite bad: Although second quarter GDP estimates for most countries were quite bad, other indicators have started to show signs of recovery. Consumer sentiment is the key variable that has started to look positive, although business performance is still well below pre-pandemic levels.

Better growth outlook for the developed world, worse for the developing: Helped by the record levels of monetary and fiscal stimulus as well as the space to provide such, the OECD has upgraded some of their growth forecasts for the developed world. However, with the pandemic still raging in key developing economies, the outlook for the developing world is a little darker.

The US elections are shaping up to be a huge risk: Both sides in the US presidential election have started floating concerns that the other would not concede the election, and forming contingencies to ensure their own victory. If such an event ends up happening, the resulting constitutional crisis could shock already-shaky markets. The election might also worsen US-China relations even further.

How have commodities been performing?

Oil prices were choppy but broadly lower:

Due to concerns over a lack of US fiscal stimulus combined with a second wave in Europe, expectations for global energy demand fell, dragging prices lower. However, continued support for supply cuts by OPEC+ helped prevent a further slide. Prices fell from a high of US$ 45.58 per barrel on the 1st of September, before falling to lows of US $39.61 per barrel by 14th of September. Prices have since recovered to the US$ 41 per barrel levels.

Gold prices fell from record levels:

Despite some strong performance earlier in the month, gold prices fell as investors started selling gold to make up their margins after a rout in US tech stocks, as well as with a strengthening of the US dollar in the middle of the month. Prices fell from highs of US$ 1,978.90.40 per ounce on the 1st of September, before falling to lows of US$ 1,857.20 per ounce, on the 23rd of September.


Top 5

Expect long-term economic scarring from Covid-19

The significant impact of new lockdowns may lead to economic scarring, fueled by structural changes in sectoral output that may be caused or accelerated by the pandemic. With global equity and commodity prices anticipated to fall in the first half of 2021, bond yields and policy interest rates would not cushion this as they are already near rock bottom.

Investors are getting pickier in emerging markets

Despite investors returning to emerging markets helping a surge in government debt issuance, some EMs are finding it difficult to secure funding, raising questions about future debt sustainability. Countries that were in need of policy reform prior to the pandemic are facing the greatest difficulty at present.

IMF chief warns global economic crisis 'far from over'

Despite the signs of a rebound in the global economy, the IMF says that full recovery is unlikely without a vaccine. Indications that the recovery remains very fragile and uneven across regions and sectors can also be seen, and so the IMF states that it is essential that support is not withdrawn prematurely.

Fed Signals Rates Will Stay Near Zero for at Least Three Years

The Fed has left interest rates near zero, signalling it would hold them there through at least 2023, while also committing to use its full range of tools to support the US economic recovery. While the US economy has recovered partially, the political stalemate over additional stimulus threatens to set back the economy.

What Else Could Go Wrong for World Economy Before 2020 Is Done

The world economy’s rebound from the depths of the coronavirus crisis is fading, setting up an uncertain finish to the year as a fear of a second wave of the virus triggered by the northern winter, expiring of government support, strains between the U.S. and China, and undermined business confidence adds further worries.

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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