Last week, GDP data for the US and the euro area for the first quarter were released. US GDP fell by 1.2% quarter on quarter, the deepest economic downturn since the last quarter of 2008. Euro area GDP fell by as much as 3.8% quarter on quarter, the strongest economic downturn since at least 1970. The second quarter will be significantly worse.
In the US, the economic downturn in the current quarter is estimated at around 10%. The situation on the US labor market remains critical, with new applications for unemployment benefits amounting to a further 3.8 million in the week ending 24 April. Therefore the number of new unemployed in the last six weeks since the global pandemic broke out is already 30 million.
US Federal Reserve met on Wednesday. Investors did not learn anything extraordinary this time. Fed left the setting of the fed funds rate in the range of 0-0.25%. At the same time, the assessment of the current economic situation and the outlook for the US economy was somewhat more pessimistic than economists expected. Now it seems that we can forget about the economic recovery in the shape of the letter "V" for the time being. Rather, it currently looks like a "U" shape, which means that the current economic downturn and subsequent recovery will take longer than economists previously thought. European Central Bank met on Thursday, and we did not see any major news in this field either. It should be added that, contrary to the expectations of some investors and analysts, the ECB has not yet announced an increase in the volume of asset purchases under the quantitative easing program.
However, global financial markets performed relatively well over the past week. The broadest global stock index, MSCI All Country World, strengthened by 1.3%, as virtually all regional markets performed well. Since the beginning of the year, the global stock index has been "only" 15% negative. Global bond markets also performed well, gaining an average of around one percent. The price of oil has risen. North Sea Brent strengthened by 23% to $ 26 per barrel.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.