Covid-19 workplace testing for your business

The ClarigeneTM SARS-CoV-2 swab test is a PCR based COVID-19 assay and detects the virus’ genetic material from a swab of the patient’s throat, then nose

Results will be uploaded on the Prova app within after 24-36 hours the sample is received in the lab

There is some discomfort from the nasal swab but will only last for a very short time

Samples are processed at Yourgene laboratory, which is Health Safety Executive (HSE) cleared for nonNHS COVID testing. The lab is ISO accredited and the test is CE marked. The test is greater than 99% accurate

Yourgene Health organise for a trained healthcare professional to administer your tests at your workplace. Alternatively, you can use your own healthcare professional

After an initially strong rebound, almost by default as economies re-opened around the world, the recovery now appears to be stalling, with real-time indicators of activity painting a picture of a recovery that is struggling to make significant further headway.

Firstly, it is worth noting that there was always going to be an initial surge in activity once lockdown measures were lifted. This is simply due to pent-up demand being released once, for example, non-essential retailers re-opened their doors. This release can, however, only carry the economy so far, and is something of a ‘one-shot deal’, once it’s released, that’s it.

It is at this point that the economy, especially here in the UK, now finds itself. Those who had postponed non-essential purchases until establishments re-opened are now likely to have made that purchase, or cancelled it altogether, hence the levelling off in sales after a sudden re-opening week pop.

Furthermore, there are additional, rather concerning, signs of the economy approaching stall speed.

Firstly, we are seeing something of a reluctance among consumers to re-engage with the economy, likely owing to continued fear of catching the coronavirus, despite incidence of the disease falling significantly, in Europe at least. A recent Ipsos MORI poll pointed to 60% of the population being uncomfortable with the idea of visiting pubs or restaurants; and 55% not being comfortable visiting gyms or leisure centres, though that may be down to more than just the virus!

Nevertheless, until confidence is restored, and people view it as safe to re-engage in more ‘normal’ economic activities, the recover will be stunted. Couple this with the continued requirement for social distancing limiting capacity for the foreseeable future, and we are left with a ‘90% economy’.
We also cannot forget the virus itself, as it is this – not monetary or fiscal responses – that will be the primary determinant of the speed, and scope, of the economic recovery. A second wave of the virus, or even more targeted local lockdown measures, are likely to result in a rather bumpier and slower return to trend growth.

It is also important to consider the labour market, and the scale of jobs destruction that is soon to become clear. Thus far, the furlough scheme has largely prevented mass redundancies, and succeeded in keeping employees attached to their employers. However, with 9mln jobs currently furloughed, and the economy in by far the deepest recession in living memory, keeping unemployment at the culmination of the furlough scheme below 3mln will be a good achievement.

A key focus in the coming months, rather than keeping people in employment, will be finding innovative ways of getting people back into jobs, especially those who have been hardest hit as a result of the covid crisis. It is imperative that unemployment is lowered as quickly as possible, as any form of economic recovery is near impossible with such a significant drag on demand.

Michael Brown, Senior Market Analyst, Caxton FX

Increasingly, it appears that the worst of the coronavirus crisis is over; with infections and fatalities declining, economies re-opening, and normality slowly, but surely, returning.

However, as the unlocking process gathers steam, so do concerns over a repeat of the situation in March; a second wave – not just of the virus itself, but also the economic carnage that would also result.

Firstly, we must consider the epidemiological aspect. While I am not an expert in the field, those that are have suggested that any lifting of lockdown measures will result in an increase in the infection rate, or ‘R’ value. This is logical, as the risk of catching the virus would naturally increase if people aren’t spending all of their time at home.

The problem with a second wave of the virus is containment. Would governments re-impose lockdown measures for a second time, setting everything back to square one; or would the virus be left to run a more natural course, similar to the approach that Sweden have taken. In answering this question, it will be important to look at the present situation in Arizona, which is currently seeing a resurgence in cases and hospitalisations.

However, whether there is a second lockdown or not, the significant hit to consumer and business confidence caused by a resurgence of the coronavirus, would slam the brakes on the fragile, and young, economic recovery.

Speaking of the recovery, despite the bottom now being in when it comes to output, the global economy still faces a road back to normality littered with potholes. Chiefly, these centre around the withdrawal of government support schemes. In the UK, July will be crunch time for the labour market, as employers decide whether or not to contribute towards the salaries of furloughed employees. This will be the acid test for the scheme, and will determine if it has done any more than merely delayed a mass wave of joblessness.

More broadly, however, as the grants, loans, and tax relief measures that have been implemented worldwide are slowly phased out, the answer to the question of whether temporary liquidity problems have become catastrophic solvency ones will quickly become evident.

Finally, we have the market to worry about. Since bottoming in mid-March, the S&P 500 has rallied almost 45%, and now sits in positive territory year-to-date. To say that price action has become frothy, and investors over-exuberant, would be an understatement. However, the speed and scale of the stock recovery has caught many (including myself) by surprise, and the fear of missing out continues to push indices to the upside.

That being said, if the economic harm is worse than priced, the recovery takes longer than expected, or there is a second wave of infections, risk assets should pullback. In such a scenario, the recent winners that have led the rally have the furthest to fall; so watch out below in the tech sector.

Michael Brown, Senior Market Analyst, Caxton FX

May 2020 could go down as the month that changed the course of the euro, and ensured the currency’s longer-term stability, with EU leaders inching closer to agreeing a deeper fiscal union as part of the coronavirus recovery package.

Since inception, the euro has been a political currency without a fiscal union underpinning it - hence the reliance on the ECB to constantly backstop things. Now, however, we are moving closer towards a much greater degree of fiscal integration among EU member states, with plans for common debt issuance to make up a significant proportion of the €750bln “Next Generation EU” fund.

In true EU fashion, however, the plan is a little bit of a fudge, aimed to please both the ‘frugal’ northern member states, and the more fiscally expansive southern nations. As a result, the plan includes €500bln in grants – to please the south – and €250bln in loans – to please the north. One must hope that the plan is approved by each and every national government, which could prove to be a major stumbling block.

The plan is important as, if implemented, it would provide investors with reassurance about the future of the bloc. It is as much about symbolism as it is about the recovery package in itself.

While the funds will likely arrive too late, and be too little, to significantly alter the course of the economic recovery, implementing the plan would be a major step towards securing the longer-term future of the bloc. This is due to the plan removing a significant degree of doubt in investors’ minds about the sustainability of the bloc, and the fact that the ECB will no longer be the ‘only game in town’ when it comes to being the glue holding everything together.

Furthermore, the recovery package should allay significant concerns over how nations with higher debt burdens – such as Italy – will finance the relief and stimulus packages needed to bring their economies out of the coronavirus recession. Raising debt at an EU-wide level would immediately remove any worries about nations being able to finance spending, and should bode for a quicker and more resilient economic recovery as social distancing measures are lifted.

The market reaction to the recovery package was largely as expected, a stronger euro, a fall in periphery bond yields, and a narrowing in core-periphery yield spreads. All textbook signs of a market that has become more confident about the eurozone holding together.

While I am not prepared to go as far as ECB President Lagarde and state that “there will be now new euro debt crisis” after the pandemic, it is clear that the recovery package – if and when it is approved – will be a major step towards greater harmonisation of the eurozone.

The bloc faces significant challenges this year, with GDP set to fall by as much as 12%, but this is an important step towards facing up to that challenge.

Michael Brown, Senior Market Analyst, Caxton FX

It goes without saying that the coronavirus pandemic is having a brutal, frankly harrowing, impact on labour markets across developed markets. Having been close to full employment at the beginning of the year, we are now in the midst of mass unemployment; a phenomenon which will likely have a disproportionate impact on those at the lower end of the income spectrum.

The policies implemented to mange this tsunami of job losses have been vastly different depending on which side of the Atlantic you sit. In the US, policymakers have largely chosen to strengthen the social security safety net; raising unemployment benefits and increasing the number of persons eligible to claim unemployment insurance.

In contrast, European policymakers have largely attempted to keep people in employment where possible, introducing a host of furlough and short-time work schemes to support businesses and preserve jobs to the greatest possible degree.

The immediate impact of the measures has been largely as expected; sky-high unemployment claims in the US (36 million since the pandemic began), and sky-high furlough claims on this side of the pond.

However, as the pandemic continues, and the economic fallout from the virus becomes clearer, questions are beginning to be asked over whether the job retention schemes are merely prolonging the inevitable. Already, the UK’s Coronavirus Job Retention Scheme (CJRS) has seen more than 8 million jobs furloughed, at a cost to the taxpayer of more than £11bln thus far. With the scheme having now been extended until the end of October, it is conceivable for the final cost to run to in excess of £50bln.

While only time will tell whether this is money well spent, it is already clear that some jobs have been lost forever, or at least for a prolonged period of time. The travel and leisure industry, for example, has been decimated by the pandemic. By some estimates, it could take until 2023 for air travel demand to return to pre-virus levels; it is not sustainable for companies not to trim their workforce in such an environment.

As a result, it is likely that the furlough scheme is keeping alive some ‘zombie’ jobs, and merely serving to postpone the inevitable layoffs.

This raises important questions over what comes next, and some clarity on this should come in July the point at which employers will begin to contribute towards the costs of the furlough scheme. It is at this point that employers’ willingness to bring people back onto their books will be put to the test. Should employers not wish to re-hire, the furlough scheme will merely prove to be a very expensive way of delaying unemployment.

However, on a more optimistic note, the furlough scheme – if phased out correctly and if the economy recovers swiftly – may prove to be just the tonic that the labour market requires to get back to a more solid footing.

Only time will tell.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

Having spent most of the last two months in hibernation, the global economy appears to be finally – albeit gradually – turning a corner. Of course, the last thing anyone needs now are further economic roadblocks to appear, but this may be exactly what’s about to happen.

As lockdown measures begin to be eased, the risk of a resurgence of the coronavirus increases accordingly. Such a second spike in infections would likely cause much more harm to the economy than the first, with many businesses that weathered the storm of the initial shock unable to do so for a second time.

In order to prevent such a second wave, governments are – on the whole – taking a gradual approach to lifting the social distancing measures. While effective at preventing a resurgence in the virus, the slow pace of re-opening will prolong the economic hardship, and will make a ‘V’ shaped recovery almost impossible. Consensus seems to now be coming round to this view, with a ‘Nike swoosh’ the favoured trajectory at present, but a more pronounced ‘U’ shaped recovery remaining a high probability.

Furthermore, one must recognise that the longer economic activity remains depressed, the greater the chances that present liquidity issues – which have been addressed by fiscal support – become more catastrophic solvency issues. It is at this point when the recession could become a depression.

As if that wasn’t enough to worry about, one must also be aware of the likelihood that geopolitical tensions begin to increase. Said tensions are most likely to stem from another flare up in US-China relations, with President Trump seemingly intent on seeking some form of reparations ahead of his re-election bid in November.

Frankly, the last thing the global economy needs at the moment is a return to the trials and tribulations, and the tit-for-tat tariff escalations, that a second round in the US-China trade war would result in. Such an escalation in trade tensions would pose a significant risk to the economic recovery, threatening to plunge the global economy back into a deeper downturn before the rebound had found its feet.

Both of these two risks have finally started to be priced into markets over the past week, with risk appetite taking a hit, and equities beginning to pullback after a relentless grind higher since the March lows. Such a trend is likely to continue, with the precarious state of the economy leading to an environment where it is impossible to buy riskier assets with any significant degree of conviction.

As a result, and as the aforementioned risks begin to play out, safe-havens should begin to appear more attractive, therefore Treasuries and the US dollar should remain well-bid. As for equities, broader indices should start to rollover, however those companies which may be somewhat immune from, or even benefit from, the current situation should outperform.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

As economies begin to re-open around the world and re-emerge from the enforced hibernation of the coronavirus lockdowns, attention is beginning to gradually turn towards the future.

This has led markets to largely discount the month of April, and most of May, in the firm knowledge that both months will see unprecedented contractions in output as a result of the ‘sudden stop’ impacts of the lockdown measures. Instead, attention is now centring on how economies will return to some kind of normality, with countries on both sides of the Atlantic beginning to relax some of the stricter social distancing measures.

Different nations will be taking different routes out of lockdown – some quicker, some slower – which raises an interesting debate over which will be the correct strategy. While it is far too early to gather any data on this precise fact, we already know that the faster the lockdown measures are lifted, the faster the economy can return to more ‘normal’ levels of output.

However, we also know that a faster lifting of the lockdown measures raises the chances of a 2​nd​ wave of the epidemic. Such a 2​nd​ wave, if it were to occur, would cause much more significant economic damage,with many businesses that managed to survive the initial round of social distancing measures being unable to see their way through a second bout of disruption.

As a result, we may end up with a ‘tortoise and hare’ type scenario, where those who are quicker to lift lockdown measures may experience more longer-term economic scarring as a result of more stringent social distancing measures having to be imposed at a later date. Conversely, those who are slower to lift the draconian lockdown measures, and take a more gradual approach, may have better longer-term recovery prospects. Put simply, one could expect the ‘hares’ to experience a W or L shaped scenario;while the ‘tortoises’ could be expected to see more of a U shaped recovery.

The only somewhat comparable event, on a global scale, to what we are currently experiencing, is the 1918 Spanish Flu pandemic. During this event, in the US, a longer initial lockdown actually resulted in a shorter total time spent under social distancing measures, compared to cities which had to lock down fora 2​nd​ time later in the epidemic. Therefore, those economies which take a slower approach to lifting social distancing measures may experience better fortunes in the longer-term, and suffer less scarring from a potentially more painful second shutdown.

One sudden stop is bad enough to deal with, two would be near impossible.What does all this mean for markets? Firstly, the market is still to fully price in the full scale of the economic damage the world faces, hence a pullback remains likely. Longer-term, however, those economies which experience less coronavirus scarring are likely to experience more robust recoveries,and should see their assets rewarded accordingly.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to all UK businesses, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

It is undoubtedly a positive sign to see economies beginning to emerge from their enforced hibernations as coronavirus lockdown measures begin to be lifted; but by no means is the economic damage over. Instead, one could say that this is just the ‘end of the beginning’ when it comes to the coronavirus pandemic.

Over the last week, Italy has outlined a plan to gradually lift restrictions from 4th May; Spain will soon be allowing people out for exercise; France plan to re-open slowly from 11th May; while President Trump has outlined his plan for reopening the US.

These are, of course, positive signs, and the first indications that we have seen of things returning to some form of normality. However, this is by no means a return to the ‘old’ normal, nor will it be a swift return to pre-crisis levels of economic output.

There are three, relatively simple, reasons why the economy will not immediately bounce back to where we were in Q4 2019.

Firstly, social distancing is here to stay. While the rather draconian ‘lockdown’ measures are being lifted, all medical expertise points to some form of distancing remaining in place until either a treatment or a vaccine for COVID-19 has been found. Therefore, we will all have to get used to standing 6 feet away from each other in public, and many venues – such as restaurants and cafés – will be forced to operate some way short of their capacity. By default, a restaurant operating at only 50% of capacity will find it near impossible to generate 100% of the revenue that was seen previously. Therefore, until social distancing is no longer required, the entire economy will be operating some way short of potential.

Secondly, there is likely to be a general reluctance among members of the public to re-engage in economic activity, even after the lockdown is lifted. Fear is, of course, a very powerful emotion, and the fear of catching a potentially deadly virus will likely put people off going to the cinema, particularly when the can watch Netflix from the comfort and safety of their own home. Already, polling from YouGov[1] points to less than half of the population being comfortable to visit restaurants and gyms; while Gallup[2] polling notes that only around 20% of the US population will immediately return to ‘normal activities’. Until people are prepared to return to pre-crisis activities, growth will not be able to significantly and substantially rebound.

Lastly, and most importantly, is the risk of a 2nd infection wave once the lockdown measures are lifted. Already, just a week or so after lifting containment measures, Germany may have to re-tighten restrictions after the ‘R’ value of the virus rose back above 1. Should such steps need to be taken in other major economies, the impact would be catastrophic.

Despite these three significant risks to the growth outlook, markets remain somewhat over exuberant. As a result, and as these risks begin to crystallise, safe-havens are likely to once again find significant demand, and a re-test of the March lows remains likely for global equity markets.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to all UK businesses, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

As the coronavirus pandemic shows signs of having reached its peak, at least for this infection wave, attention is beginning to turn to what comes next for the global economy; which is undoubtedly now in its first recession in over a decade, and likely in the deepest contraction since the ‘30s.

One question that many are likely pondering is whether the post-virus economy brings with it an inflationary wave. In the immediate-term, as the world continues to grapple with getting the epidemic under control, disinflation is blatantly on the horizon. In the longer-term, however, an inflation wave is likely to surface, possibly before the year is out.

Firstly, let’s look at the current environment. At a very basic level, a recession is naturally a disinflationary environment; the drop, or collapse in this case, in demand caused by an economic downturn instinctively depresses prices. Furthermore, the recent collapse in crude prices – including US oil falling into negative territory for the first time ever – sparked by a combination of the Saudi-Russia price war, and evaporating global demand, will naturally have a downward impact on CPI.

It is, at this point, key to understand that without demand, you cannot have inflation. Until the coronavirus lockdown measures are lifted, there will not be a substantial pickup in demand.

However, looking further ahead, the eventual pick-up in demand, combined with the present expansionary monetary policy environment, should see an inflationary wave return in the medium-term; especially given policymakers’ tendencies to allow economies to run ‘hot’.

While some demand has undoubtedly been lost forever, nobody will be going for 3 haircuts on the same day to make up for those missed for example, there will be a near certain bounce in demand; especially as those who have been cooped up inside for weeks on end flock to businesses in the services sector at the first taste of freedom. Even those who have, sadly, found themselves unemployed as a result of the coronavirus crisis will likely contribute to this demand surge due to the stronger social safety nets implemented by governments worldwide.

Furthermore, it will be difficult for OPEC+ oil producers – particularly Saudi Arabia and Russia – to sustain themselves with oil close to $20bbl. As such, further production cuts remain a distinct possibility which, along with an eventual pick-up in demand, should help prices to recover at least some of the losses.

For markets, an eventual return of inflation may dampen the attraction of bonds in the longer-term, with expansive asset purchase programmes from almost all G10 central banks set to keep yields relatively depressed. Meanwhile, a solid hedge against inflation has always been gold; while equity market returns will likely outpace that of bonds in the longer-term. In the FX world, an pick-up in inflation may have a rather muted impact, given the pick-up is likely to be relatively symmetrical across developed markets.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to all UK businesses, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

Wall Street, and markets more broadly, seem to think that everything is going to be ok, and that the worst is now firmly behind us.

On Main Street, in the real economy, things are different; labour markets are being destroyed at an unprecedented pace, lockdown measures are crippling the economy, and GDP is set to fall by the most in almost a century.

This growing divide comes as a result of two factors, however one gets the feeling that the imbalance must surely be addressed at some point.

Firstly, it is important to remember that markets – particularly equities – are a discounting mechanism. As a result, with the coronavirus pandemic’s infection rate beginning to slow, and talk of economies re-opening grows, investors are pricing out the possibility of a prolonged virus-linked shutdown.

Secondly, and a running theme of at least the last decade, is that investors remain hooked on cheap liquidity and easy money. The Federal Reserve’s ‘kitchen sink’ approach to policymaking, which is attempting to channel credit to as many people as possible, has the inadvertent side effect of inflating asset prices. The Fed’s approach, which the economy undoubtedly warrants, also means that investors retain confidence in the so-called Fed put; the notion that the central bank will always ride to the rescue when things get tough.

Despite investors’ optimism, things could not be more different in the ‘real’ economy.

As a result of the lockdowns introduced to control the pandemic, we are witnessing an unprecedented scale of labour market destruction. In the US, more than 16mln people have lost their jobs in the last three weeks alone. In other words, almost a decade’s worth of jobs gains has been wiped out in little under a month.

Meanwhile, the growth outlook looks similarly dire. With entire economies having been shut down, the IMF are expecting the global economy to experience its steepest contraction in almost a century this year; while hopes of a swift ‘V’ shaped recovery have all but faded, and a more prolonged ‘U’ shaped scenario is now the base case.

It should be clear, to even the humblest student of economics, that this divergence between exuberant investors and a rapidly crumbling real economy, is unsustainable.

As a result, in the medium-term, it is logical to expect sentiment to once again deteriorate; either as a result of a slower re-opening of the economy; a potential second wave of infections; or as a result of the impact of the Fed’s stimulus waning.

Therefore, one can expect equities to fall back and retest the lows seen in mid-March; while haven assets – gold, Treasuries, and the dollar – should remain well-supported.

Despite what the market wants to believe, the coronavirus pandemic is far from over. In fact, the economic implications of it are only just beginning.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to all UK businesses, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

There hasn’t been much good news lately, as the coronavirus continues to rampage across the world. Investors, however, are beginning to see some glimpses of light emerging at the end of the tunnel.

The infection rate in Italy, one of the hardest hit nations thus far, continues to decline; New York, the hardest hit US state, may have reached the ‘apex’ of its infection curve; while Wuhan, the Chinese city where the pandemic began, has now reopened after a near 3-month long lockdown.

This is, however, a guessing game; both for epidemiologists and for investors.

The peak of the disease can, by definition, can only be identified after the event. Therefore, while these are – undoubtedly – positive signs, it is difficult to say with certainty that the world is out of the woods.

This poses a problem for investors, who are trying to position for what comes next, despite the present state of the pandemic remaining shrouded in uncertainty. Furthermore, and a second problem facing markets, the economic impact of the pandemic and associated lockdown measures is also unclear.

What is clear is that we are now in the midst of the first global recession in a decade. What is less clear is how quickly economies can bounce back from their presently hibernated state.

There is, unfortunately, not a clear answer to this question at this stage; though it is clear that the recovery will likely be asymmetric. In countries that have aggressively eased monetary policy and implemented significant, targeted, fiscal measures – such as the US and UK – the recovery should be swifter, albeit not immediate. In areas, such as the eurozone, where the monetary response has been more limited, and the fiscal response somewhat lacking, the recovery is likely to be more prolonged.

As investors digest incoming economic data, and attempt to piece together the post-pandemic economic jigsaw, the only certainty is that volatility is set to remain elevated. This elevated volatility should also see safe-haven assets – bonds, the dollar, and gold – remain supported, as a result of both risk aversion and investors hedging riskier positions.

History may be able to teach us some lessons about where we go next. In 2008, the most recent global recession, equity markets didn’t bottom out until around 6 months after the bear market began. Despite the accelerated nature of the sell-off this time around, it is difficult to argue against there being further downside to come for global equity markets, particularly as the brutal economic blow from the pandemic becomes increasingly clear. It is also worth remembering that some of the biggest market rallies can be seen in bear markets.

To conclude, while there are clearly some glimmers of optimism beginning to creep in, it is far too early at this stage to say that the end to the pandemic is in sight. Consequently, volatility is set to remain elevated, and there may be more pain to come for risk assets.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to all members, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

I’m sure all readers will agree that the first quarter was a bumpy ride – for markets and for society as a whole – as the coronavirus pandemic gripped the globe and upended life as we knew it.

For financial markets, the first three months of 2020 were a journey from euphoria to panic. Having begun the year on an optimistic note, the mood swiftly turned to pessimism once we reached the halfway mark and the full scale of the global health crisis became evident.

The violent nature of the moves in March was unprecedented, and saw several milestones fall. Global equity markets saw $15tln wiped off their value in the worst quarter since 2008; the 10-year Treasury yield fell by the most since 2011; Brent crude experienced its worst quarter ever; and the dollar experienced its biggest 3-month rally in four years.

While the magnitude of the moves seen in Q1 was vast, we are by no means at the end of the story.

The fast-moving coronavirus pandemic, which is almost the sole factor driving price action, is far from over. Despite some small glimmers of hope that the epidemic curves may be flattening in some parts of Europe, the US outbreak appears to only just be getting underway. That is before we come to the economic implications of the ‘lockdown’ measures imposed to control the virus, which will become clearer in the months ahead.

At the beginning of the coronavirus outbreak – when the virus seemed isolated to China – the assumption was that the global economy would experience something of a ‘V’ shaped 2020. That being a scenario where output falls very sharply, before recovering equally as quickly once the virus blew over.

Now, however, it is clear that the pandemic is having a much more severe impact on the global economy, making a ‘U’ shaped scenario the best we can hope for. The first global recession since 2009 is now an inevitability, as economies across the world slowly shut down as the virus spreads westwards. The best hope now is that the economy can come out of its hibernation – with the help of accommodative monetary and expansionary fiscal policies – and return to a similar level of output in the second half of the year.

A more dire outcome – which may come about either as a result of the virus not being controlled, or due to the impotence of fiscal and monetary policies being exposed – would be an ‘L’ shaped scenario. This would involve a sharp slowdown in output – driven by governments effectively switching off entire economies overnight – before a failure to recover to the levels of growth seen before the pandemic struck.

Of course, with so many unknowns on the horizon, the only certainty is volatility; as market participants continually adjust their outlook for the global economy and position appropriately. The likelihood is that sentiment will sour once again, with further negative virus news likely. Furthermore, as the economic impact of the pandemic becomes clearer, risk appetite will also likely deteriorate.

With foreign currency being a fundamental part of business, Caxton are providing a free consultation service to UK businesses, available Monday to Friday 8am-6pm.

Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX

The rapidly-moving coronavirus pandemic continues to roil financial markets across the globe, as investors continue to try and gauge the economic implications of the biggest public health crisis in a generation.

The global economy now faces a twin supply-demand shock, coupled with a series of ‘sudden stops’, with lockdowns of entire countries having the effect of almost turning off the entire economy overnight. As much of the western world now stands under some kind of lockdown measures, a global recession – the first since 2008 – now seems inevitable.

As a direct consequence of the inevitable economic slowdown, coupled with the unknowns over how long the virus containment measures will last, volatility has markedly increased across asset classes, resulting in tumultuous trading conditions. In the equity market, volatility (as measured by the VIX) has soared to its highest levels since the financial crisis in 2008; while, after spending last year languishing at record lows, FX volatility has also experienced a noticeable uptick.

Of course, the surge in volatility provides opportunity for some; but also significantly increases risk for others.

This risk, and fear that the public health crisis could spiral into a financial crisis to end all crises has resulted in an unprecedented wave of policy measures from global central banks. Of course, interest rates have been slashed to levels last seen during the Crisis; however it is liquidity measures, aimed at ensuring the market continues to function in a proper manner, that are the most important. Said measures, such as dollar swap lines and increased repo operations, will help to mitigate the risk of a coronavirus-linked blockage in the plumbing underpinning financial markets.

There has also been a significant response on the fiscal side, as global governments hurry to provide grants, loans, and other measures to mitigate the impact of the virus on businesses. These packages – including the UK Government’s unprecedented move to fund people’s wages – are designed to ensure that viable businesses are able to bounce back once containment measures are lifted. In other words, to ensure that the now-inevitable recession doesn’t become a longer-lasting economic depression.

For markets, volatility is likely to remain elevated over the coming weeks, as the news flow from the coronavirus will remain heavy, and as the economic impact of the pandemic becomes clearer. While a recent bounce in sentiment, and release of some funding pressures, are positive signs; sentiment could – and likely will – turn on a sixpence as investors continue to monitor the progress of the pandemic. It will only be possible to call a true bottom once infection curves begin to flatten, and economies begin to recover to a more ‘normal’ level of output, likely in Q3.

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Simply email [email protected] to arrange a time to speak or alternatively ask any questions you may have. We look forward to hearing from you.

Michael Brown, Senior Market Analyst, Caxton FX