Insights

The capital markets generally look very far into the future without emotions. Otherwise - in view of the daily abundance of news about the human tragedy of the corona pandemic and the consistently very negative forecasts for the global economy - the relative stability on the stock markets or even the positive development of prices over the past two weeks could not be explained.

The strong rally on the stock markets in recent weeks has surprised many market participants. The global stock market index MSCI World is now only about 8 % below its value at the beginning of the year. While the bad news about the economic development as a result of the global restrictions to contain the Covid-19 virus became more and more concentrated and economic expectations became increasingly gloomy, the investors bought stocks on a considerable scale.

The midterm economic consequences of the Covid-19 pandemic still cannot be estimated. Clearly, the current episode will have a profound impact on the economy and will bring people's lives into a new normality. What exactly this new normality will then look like is also not yet clear. The global infection situation, especially in the United States of America and some converging countries, is a strong signal that the spread of the virus is far from under control.

These days, our thoughts and conversations almost exclusively revolve around the immediate impact of the corona pandemic on our personal lives, on society and on our future after the crisis. The human tragedy of the pandemic is bitterly brought home to us by the various platforms and the daily stream of news on all conceivable channels. The economic consequences are immediately felt due to the serious measures that have been taken in many countries to achieve effective social distancing.

In the last two weeks our lives have changed fundamentally. The measures taken by the government to slow down the spread of the Covid-19 virus have resulted in an unparalleled slowdown and almost a standstill in our lives. Business trips are being cancelled, and wherever possible, teams are being split and moved to home offices. People buy food - sometimes in huge quantities - and otherwise practically stop consuming. Private trips are cancelled, and all plans are put on hold for the time being.

The MSCI World stock market index has risen by more than 2 % since the beginning of the year - despite the epochal uncertainties regarding the further course and the effective impact of the corona pandemic on the economy and society. At the same time, the price of gold has risen by almost 28 % and the price of oil (Brent) has fallen by 36 %. How can this be and how does it fit together?

Uncertainties are part of the day-to-day business on the capital markets. At the moment there are quite a lot of them: The Corona pandemic is triggering new waves of infection around the globe, restricting people's lives worldwide and destroying several business models - the medium-term economic consequences will be serious, but are difficult to assess at present.

In the last few days, two news have moved global stock markets significantly: The election of Joe Biden as the next President of the United States and the announcement that there is promising progress in the development of an effective vaccine against Covid-19. Both news pieces were very well received by the markets, as evidenced by the CBOE volatility index VIX.

The year 2020 will remain in the memory of us all. The Corona pandemic suddenly turned our lives upside down. With the first measures to combat the pandemic in March of last year, the world seemed to have fallen apart. Until then, hardly anyone could have imagined that politics would be forced to intervene so deeply in people's freedom of movement.

Since March 2020, the U.S. economy has officially been in a recession. The end of the U.S. economy's longest expansion with a duration of 128 months - since records began in 1854 - was announced by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) on June 8, 2020.

Inflation has become an issue again. Measures taken by governments and leading central banks to stabilize the economy since the outbreak of the Covid-19 pandemic have raised inflation expectations.