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Lombard Odier Predicts "Tick"-Shaped Recovery

Stéphane Monier, 7 April 2020


The private bank thinks the most likely recovery curve will look something closer to a tick, or a shape sometimes likened to a Nike “swoosh”: a brutal decline followed by a quick rebound that then tails off.

This news service has published a number of wealth managers’ perspectives on the COVID-19 pandemic. Here is a sweeping overview from Geneva-based Lombard Odier, written by Stéphane Monier. He argues that given present data about the pandemic and national lockdowns, the most likely recovery curve will look something closer to a “tick” - a brutal decline followed by a quick rebound that then tails off.

The editors of this news service appreciate the chance to publish views from external contributors. The usual editorial disclaimers apply. 

In February, we were astonished that Wuhan, a Chinese city of 11 million people, could come to a standstill in an effort to contain the coronavirus. Two months later, an estimated 50 per cent of the world’s population is living under a pandemic lockdown and the global economy is suffering as the number of infections in Europe and the US have surpassed those recorded in China.

The Covid-19 pandemic has now killed almost 70,000 people globally and infections are reported at more than 1.2 million, of which one quarter are in the US. Meanwhile, containment measures around the world have intensified and China has registered new infections only from nationals returning from foreign trips. On the monetary front, the response from central banks has been unprecedented in its breadth and scope, as they continue to reassure markets with short-term liquidity. In parallel, unprecedented fiscal spending is countering record unemployment rates across economies and fortunately comes at a time when governments can afford to borrow at low or even negative interest rates.

As we have argued since the start of the pandemic, these are three components essential to beating the coronavirus.

One positive lesson from the successes of China and South Korea in combatting Covid-19 is the need for intensive testing. Testing capacities and technologies are improving rapidly, including ‘serology’ tests to spot individuals’ immunity. These offer some hope that, eventually, they may help governments get their labour forces moving again. The number of these so-called ‘reverse transcription polymerase chain reaction’ tests (known as RT-PCR) has risen to more than one million as the US, China, Europe and South Korea have significantly expanded testing capacities in the last two months.

Markets reflected the unprecedented economic freeze over the first quarter of the year with brutal declines as the virus slashed production and consumption. As more stringent containment measures came into effect in the US and the pandemic showed early signs of slowing in Italy and Spain, Europe’s two most severely impacted countries, indices recovered some of their losses. The S&P500 finished the quarter 20 per cent lower and the Euro Stoxx 50 fell by 28 per cent over the three-month period.”

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