2020 Q2 Outlook & Review2020Q2Outlook&Review

The rapid spread of the coronavirus has triggered a global health crisis, rocked global financial markets, and caused a sudden stop in the global economy.

• Global equity markets have melted down at a dizzying speed, and implied volatility has surged to global financial crisis levels.
• Global bond yields first plunged to an all-time low, then recovered as market participants contemplate the impact of a tsunami of government bond issuance designed to ease the pain of the crisis and stave off economic collapse.
• The pandemic itself will worsen before it gets better, and no one can say with certainty when the crisis will abate.
• A global recession is unavoidable at this point. The big question is whether it will be a sharp but short recession lasting just a couple of quarters or a more sustained economic downturn.
• A more benign type of recession would occur if efforts to bring the virus under control succeed within a few months, however, we are closely monitoring for downside risks, potential “tipping points,” and signs of economic contagion that could push us toward a more adverse economic scenario.
• The Saudi/Russia price war has led to a collapse in the price of oil, which could not have come at a worse time. Lower energy prices will benefit global consumers, but these benefits are diffuse and realized over a period of time, while the costs for energy-producing firms and countries are immediate and concentrated and are causing credit market shockwaves.
• The response from global policy makers will play a critical role in determining how much collateral damage can be minimized.
• Governments around the world, both central banks and fiscal authorities, have adopted a “whatever-it-takes” war-time type response and are throwing everything but the kitchen sink at the problem.