Market Update for October 19, 2020
Three Keys to the Global Economic Outlook
The global economic outlook is necessarily tied to three key topics: monetary policy driven by global central banks, containment of the coronavirus, and government spending via fiscal policy. On all three fronts, momentum continues to build for a thesis of a synchronized global recovery albeit with substantial dispute about the ultimate timing of an in-depth recovery.
Leading the charge on the monetary front is the Federal Reserve which has cranked-up the money supply by 23% on a year-over-year basis, the biggest change on record. The Fed also announced its intention for the U.S. economy to surpass its inflation target of 2% thus paving the way forward for accommodative policy to stay in place for years.
With respect to COVID-19, the “lock-down” phase is partially giving way to re-opening coincident with progress on vaccines and therapeutics. The success here will not be realized entirely until sometime in 2021, the soonest that a “return to normal” phase can start.
Alternative data, such as mobility tracking, shows that the masses have started to re-emerge and we accordingly expect improvements in corporate earnings and boosts to manufacturing. Similar to other recovery environments, business leaders are showing signs of optimism ahead of consumers largely driven by continued expectations of further fiscal stimulus.
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