With few exceptions, most countries affected by the current pandemic opted for a complete or partial lockdown. Thus, working from home is for many, a dream come true. Being able to complete tasks online without seeing your boss, while watching Netflix series and being paid seems ideal. Especially if you are a millennial... But, this situation is not sustainable, because the luxury of working from home depends on the growth of the GDP, which relies heavily on consumption. No consumption means no GDP growth, no growth means no financing and no financing means no salaries for those working in the services sector.
The conditions that led to mass unemployment during the Great Depression are in some ways similar to what is happening right now. It is difficult to restart a frozen engine and it is even more difficult to restart an economy paralyzed by a lack of demand.
Governments should focus more on how to get people out of their houses back to work and limit the lockdown period as much as possible. If the lockdown is too long, it might be irreversible for most of those confined in their houses. The underlying risk of this strategy is to face mass unemployment in a services-oriented economy.
When the Lamb broke the fourth seal, I heard the voice of the fourth living creature saying, "Come." I looked, and behold, an ashen horse; and he who sat on it had the name Death; and Hades was following with him. Authority was given to them over a fourth of the earth, to kill with sword and with famine and with pestilence and by the wild beasts of the earth. (Revelation 6:7–8)
The stock market contraction is relatively smaller than the 2008 crisis and is far from being comparable to 1929. But, we are not yet at the end of the road. Over the past week, the Dow Jones continued to drop and found support at 19,000. After the early week crash, the Brent Crude Oil contract observed a relatively small recovery, but trades in a region of high volatility around 27 USD. The price of the gold ounce was resilient, and it dropped to 1,500 USD only because institutional investors were rebalancing their portfolios.
Financial institutions underperformed the leading market indices and observed more significant contractions. European banks like Societe Generale, RBS or Deutsche Bank seem to be more impacted, while Goldman Sachs is for the moment in a better position. If the current situation continues, several banks would require bailouts as they required in 2008. The analogy stops here because, amid current conditions, the financial sector is not the only one that will need rescue.
Bitcoin had a rather hectic evolution and moved into positive territory after reaching an alarming yearly low level at 4,400 USD. There are signs that the Chinese economy looks for a way back to normality and this could affect positively the Bitcoin price. We may observe spikes and sudden drops in price as speculators will try to arbitrate the few big transactions in the market.
Bitcoin is doing better than other crypto-currencies. Ether and Ripples lost over 60% since the beginning of the pandemic and their outlook is negative.
We all know that the trend is negative. So the only question is how negative it will be? The answer depends on the timeline of the shutdown. A cure or drug diminishing the risk of contagion appears over the next two weeks could hinder the market fall. Under the current scenario, the market can move deeper into negative territory. The equity market could touch the level before the 2008 credit crunch.
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial in- strument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.