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Key Takeaways From China Recovery Panel
- Up until this past week, mobility had increased significantly, but weekend mobility was so close to zero, as a result, the speaker mentioned they were very cautious with rotational trades out of consumer staples and into consumer discretionary, as a result of that lack of weekend mobility. Re-opening index structure is running ahead of PMI statistics, which can measure how sustainable the re-opens are for Asian countries, China looks pretty good from a sustainability perspective. App-level data appears to be shifting away from initial strong momentum for Work From Home categories, and towards Navigation and Banking Apps.
- Data shows China’s recovery is incomplete and uneven. The growth in the overall economy, the level of the growth is weak, but the increase in momentum is encouraging. The recovery has not been even across sectors, one very important area of weakness in export markets. In the recovery period. The main trends are manufacturing jobs have been relatively strong performance, but consumer goods are the biggest laggard.
- China’s official economic data is still unreliable, the speaker thinks the growth might be even worse for the first quarter. The credit growth machine appears to be restarting. China’s Debt/GDP will spike in 2020 even with modest debt growth. A repeat of China’s post-2008 investment boom is not likely to happen.
Key Takeaways From European Recovery Panel
- Without a vaccine, the future of work and consumer behavior will remain very different from what we are used to. It will affect transport, how we work, how we shop, city planning, etc.
- Supply chain weakness, Brexit shock, and the fact that studies have shown that Significant macroeconomic after-effects of pandemics, including effects on asset value, persist for about 40 years meaning we could be in store for an L-shaped recovery in Europe.
- Even in countries with a relaxed lockdown, it is not only government policy driving changes. Just easing restrictions doesn’t bring about a complete change in consumer behavior and it is clear from a Geo-location data provider’s data that when you compare countries that have a strict lockdown to countries that have a relaxed lockdown, workplace attendance and visits to POIs tagged as consumer discretionary and staple remain low.
Key Takeaways From US Recovery Panel
- JP Morgan built 2 complimentary indices, recession risk index and recovery risk index, using economic traditional data and dynamic factor modeling and cited that the probability of US economic recovery in the next 3 months is more likely to be around 20-30%. They also highlighted that the relationship between S&P500 and probability of recovery within the next 3 months was showing a big divergence indicating that S&P500 had more of an optimistic outlook which isn’t necessarily a true representation of the US economy. They also created an index with some alternative datasets which suggested that these datasets provided a better recovery measure. Another chart of S&P500 and the probability of Trump being re-elected was also discussed, with correlation turning very high since February 2020 indicating that if S&P continues to go up Trump is more likely to be selected based on anecdotal evidence. They also highlighted that economic activity has picked up but not to the extent of market pricing and so monetary stimulus injected in the economy could be the driving factor.
- SpaceKnow’s PMI activity index based on geospatial data, which is a measure of the change in activity at US industrial locations suggested some recovery in the downturn seen back in April (up to 30% in May MTD). Of those locations, 45% showed very low activity relative to normal activity levels, and so according to them, we’re at the initial point of a V-shape recovery. It won’t be strong for numerous locations but in comparison to global geospatial data, it doesn’t look too bad as most of the other western countries are at a lot worse than the US.
- Visible Alpha aggregated individual forecasts of sell-side analysts on individual companies to a sector and industry level to provide a forward-looking view. According to them, the perception of analysts had a lot of commonalities, and based on the patterns, they identified four different trajectories. As per their view, certain sectors like healthcare and technology that were deeply impacted would have a relatively rapid recovery in more of a V shape. The consumer services sector is much more tied to the opening and so the expectation is that once people go out, the consumer sector will recover in U shape. Industrial, materials, and consumer goods took a huge hit to profitability with airlines not getting back to 2019 levels even by 2022. Financials and energy sector have their own problems and so profitability has a long road back so it’s more an L shape. And lastly, utilities and telecommunications not being impacted according to their observations.
- ETF Global highlighted that in regards to the US recovery standpoint, ETFs are a key driver across the board as the Fed is looking to buy into ETFs to stimulate the economy, particularly on the fixed income side. They are seeing ETF flows driven by the sentiment in the US market place, as sectors have hit their lows, and investors are not diving into individual securities because of volatility and risks. For instance, Jets, an airline ETF of all the US-based airlines, has seen consistent inflow going up almost 1400% in the last 2 months. They aren’t seeing much movement in the utility or telecommunications sector just like Visible Alpha but there’s a lot of movement in technology and financial sector. In short, they are noticing sentiments being played out in the ETF space as investors are hesitant to play the market until they recover completely.
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- ‘As more states ease lockdown orders, Americans are starting to eat out, book flights and buy houses again. The return of these activities, mirrored in other countries, is stoking optimism in the markets.’ Click here to read the article.
- ‘Clearbrook Global Advisors, which invests in hedge funds, has developed a seven-step plan for reopening in stages. It calls for appointing an in-house Covid-19 coordinator and testing the firm’s 24-member staff in New York before they return, said Tim Ng, the chief investment officer. .’ Click here to read the article.
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