The markets are weighing the potential of a second wave of the coronavirus pandemic…and then there's the IMF's latest warning
With lockdowns easing and talk of kickstarting economies, there remains a very real risk that we have not seen the full impact of the coronavirus pandemic.’
Meanwhile, the IMF says that the global economy will suffer “significant scarring” from the pandemic.
Markets slumped Thursday amid growing concern that a second wave of COVID-19 infections could devastate already-weak economies and spark a crash.
In Canada, the TSX dropped more than 4%, its biggest one-day fall since March 9. All sectors were affected with healthcare and energy taking the biggest hit. However, even with the drop the market is 34% above the recent low of March 23.
“It’s been a pretty breathless and relentless rally so we wouldn’t be terribly surprised to see a pause or a bit of a pullback,” Brian Madden, portfolio manager at Goodreid Investment said on BNN Bloomberg. “But that’s not to be misunderstood that we’re going back to the depths of the March lows.”
Real risk of new peak
The jittery sentiment was fueled by the World Health Organization’s chief scientist who warned that there is a “very real risk” of a rise in infections if governments do not keep tight reins on social contact as they move to reopen their economies.
“We don’t know if it will be a second wave, a second peak or a continuing first wave in some countries, it (the infection rate) really hasn’t come down that much at the time of reopening and so all of these possibilities are very real,” Dr. Soumya Swaminathan told CNBC.
She added that countries cannot be complacent and maintain the social distancing that has kept transmissions in the community relatively low.
WHO says that there is uncertainty about the role of those that are showing no symptoms. It is likely that these people spread the virus less easily than those with symptoms but the potential size of the asymptomatic cohort is a risk.
IMF set for gloomy outlook
The IMF will release its latest projections of economic growth in June 24 but has released a new video from chief economist Gita Gopinath which speaks of concern about the path of recovery.
The video was recorded before the market drop Thursday and referenced the gains for markets in recent weeks that have been helped by government and central bank actions.
“You’ve had very rapid cuts in monetary policy rates, very large amounts of liquidity infusion, and this has absolutely helped with global liquidity,” Gopinath said. “The question of course is how long will this continue and can this hold up.”
