Macroscope | Why financial markets and epidemiology are not a good mix

Signs that Covid-19 is nearing its peak have helped steer a rise in global stocks, but the data is still too limited to draw any conclusion

Many investors are anticipating a recovery in the third quarter, but any attempt to predict the evolution of the coronavirus is fraught with uncertainty

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A cyclist wearing a face mask rides in front of the Central Business District in Singapore. Photo: EPA

Published: 9:00am, 17 Apr 2020Updated: 9:03am, 17 Apr 2020

Over the past couple of months, investors and traders have become amateur epidemiologists.

The unprecedented economic fallout from the Covid-19 pandemic – on Tuesday, the International Monetary Fund predicted that the “Great Lockdown” would cause global output to contract by 3 per cent this year, the worst recession since the 1930s Great Depression – has forced market participants to pay close attention to the daily data on new infections in the hope of identifying turning points in the crisis.

Investment banks are hosting client calls with top virologists and churning out research on Covid-19. JPMorgan, in particular, was quick off the mark, coming out with a series of new Covid-19-focused reports early on in the crisis, including a daily note on China which compiles high-frequency measures of economic activity that track the progress of the world’s second-largest economy as it emerges from the lockdown.

In a sign of the extent to which sentiment is being shaped by the progression of the coronavirus, tentative signs that the disease is approaching its peak – particularly in Italy, one of the hardest hit countries, where new cases are starting to fall and daily death tolls are declining – have contributed to a 22 per cent rise in global stocks since March 23, turbocharged by massive monetary and fiscal stimulus.

As several countries, including the US, start to discuss their strategies for loosening restrictions on daily life and business, many investors are anticipating a recovery in the third quarter of this year. Indeed, in a report published on Tuesday, UBS noted that “the market is currently pricing in that economic activity will start to normalise from early to mid-May”.

School desks are set a certain distance apart from each other at the Stengaard School in Gladsaxe, Denmark, on April 14, as the country prepares to loosen restrictions. Photo: EPA

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Why financial markets and epidemiology are not a good mix

Macroscope | Why financial markets and epidemiology are not a good mix