Appetite for Consumption
The rejection of the range-top in Treasuries Tuesday underscores the broader range trade in markets. That shouldn't be surprising ahead of a pivotal and uncertain US election. That question won't be answered for at least three weeks but there is a risk of losing focus on the global economy.
The IMF was out with its latest forecasts Tuesday and now sees the global economy shrinking 4.4% this year compared to its -5.2% estimate in June.
The pandemic was a true global shock but the sharpness of the recovery has been a surprise itself. Thankfully, it didn't expose any hidden fault lines in the global economy or financial system that would have led to a deeper breakdown. Or if it did, those vulnerabilities were quickly covered up by unprecedented monetary and fiscal stimulus.
At the beginning of the crisis, economists were front and centre predicting harder times than it has been. Once bitten, twice shy.
There's certainly no shame in not seeing every eventuality of an unknown virus and unbelievable stimulus. Even those who preached the power of central banks underestimated the power of zero rates and balance sheet expansion.
Yet we're now in an uneasy spot in the recovery. Economic data has leveled off and the virus is resurging. Governments are preparing various levels of stimulus but it's less than in earlier rounds; central banks are largely out of ammunition.
The IMF is forecasting 5.2% global growth next year but that's highly dependent on stimulus; or on your view of how much that stimulus has held economies together.
Early lockdowns and then reopenings much better for consumption than anticipated. People redirected spending towards the home and a shift to remote working. In a second lockdown people may hunker down and stop spending, they might rebel. The virus could spiral.The US election and Brexit are highly uncertain but relative to the next 8 months of the pandemic, they're a life raft of certainty. Since the pandemic bottoms, the news flow and market flow has been almost entirely positive. How prepared are we – really – for disappointment?
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