Markets Live, 5th of May, 2020

State Street’s global head of macro strategy, Michael Metcalf, this morning points out the huge differences in opinion of what will happen to the US economy in the March to June quarter. The economy shrank 3.5 per cent in the first quarter.

“Whilst the market took the sharp decline in US gross domestic product (GDP) during the first quarter of 2020 relatively well, there is far worse data to come,” he writes in a note to clients.

The current consenus for the second quarter is a decline of 25 per cent, year on year. However, the range of estimates is so big that ”it has never been so difficult” to work out what will happen.

“The data is so crazy that the uncertainty around these estimates is also unprecedented. Even if we remove 50 percent of the most extreme forecasts, the range of estimates for second quarter is a calm 12-percentage points between -30 percent and -18 percent.”

“Such uncertainty is more than four-times the norm, even during a recession. This significantly weakens the normal modus operandi for financial markets, as simply picking the median forecast is now much less representative of the ‘consensus view’, which should also be reflected in market prices.”

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