Pie Funds chief executive Mike Taylor is perturbed by all the chaos and social unrest of the past week in the US. He said that it is regrettable while speaking to nzherald.co.nz: In general, the surge in the US and global markets were fueled by optimism about progress from the lockdowns. However, there is still a major economic downturn to play out. Taylor said: The thought of incremental progress was forming an optimistic overview of the markets and economy at large. As the world went into lockdown, New Zealand’s NZX-50 and US markets lost almost 30%. Since then, they have recovered massively. The NZX up and the US S&P500 now up 31% and 37% respectively from their March lows. In New Zealand, a2 Milk and F&P healthcare contributed extensively in the strong rebound.
Stimulus Packages
Both New Zealand and the United States have had substantial stimulus packages. In New Zealand, the government provided a fiscal stimulus of almost $60 billion. Also, the Reserve Bank provided an additional $60 billion of monetary policy stimulus. On the other hand, the US has had almost US$2.7 trillion of fiscal stimulus in addition to a monetary stimulus of $5.6 trillion.
Threats
The biggest threat to most economies around the world was the rapid spread of the health crisis. But, as markets recover, a second wave of the disease threatens to cripple economies. Taylor commented: If a second wave arises, it will finish off many businesses that are currently just hanging on. Although an economic downturn would eventually emerge with unemployment on the rise, everything was happening rapidly. Unemployment surged at rates that would take years in normal market conditions. Thus, hopes were high that the recovery would also happen rapidly. The United States has recorded around 40 million jobless claims as the lockdown bites hard. Nonetheless, the ongoing claims were now about 21 million. Geo-political risks are also coming into play. Although the markets are unaffected by domestic matters in the US, the growing tensions between China and the US remain real. Taylor says that these factors should not be underestimated.
