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June 1, 2020
With the easing of mobility restrictions and the reopening of businesses, the global economy likely bottomed at the end of April. Now all eyes are watching for any spike or resurgence in infection rates and the level to which consumers around the world re-engage. Here in the U.S., we remain concerned that a certain amount of structural (more permanent) unemployment may develop as businesses struggle to stay open under reduced capacity regulations. Additionally, state and local governments may have to reduce employment due to increasing fiscal pressure. Overseas, developed countries have taken some positive baby steps on the road to recovery. Germany and France have agreed to a fiscal recovery plan for European countries most in need that will be financed by the European Union’s (EU) budget. This plan still needs approval from the full EU. Japan, one of the hardest-hit economies, has lifted its state of emergency for the entire country.
Amid all the news about the global reopening, a previous market driver has resurfaced. The U.S. and China appear to be devolving into an outright cold war, which would likely have a more significant impact on Chinese economic growth. Investors should watch for renewed tariffs on Chinese products and the continued removal of supply chains out of China.
With global economies close to fully reopening by the end of June, the markets are eagerly anticipating signs of the magnitude of consumer and employee re-engagement. We expect numerous closures and structural unemployment in the industries most affected by the lockdown, which may lead to uneven economic results and a subsequent correction in the markets.
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Ben Pace, James Lebenthal and Christian Thwaites
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