Largest and most abrupt shock to growth in modern history
As COVID-19 spread rapidly around the globe, the biggest impact to global economies came from government-imposed lockdowns that shuttered businesses and curtailed consumer activity. As a result, we have slashed our growth forecasts over the past quarter, and they are now mostly below-consensus.
Sovereign-bond yields fall to record lows, held down by central banks
In March, the U.S. 10-year Treasury yield fell to an all-time low of 31 basis points as investors sought safe havens and central banks ramped up bond buying. Over time, our models suggest that yields should ultimately rise from current levels, but accommodative central-bank policy may limit the extent to which they can.
Stock crash sent global equities into a bear market, but the panic was short-lived
Major market indexes fell more than 30% in a matter of weeks in February and March as volatility surged. However, the S&P 500 Index has already recovered two-thirds of its losses, led by growth stocks and companies with highly predictable earnings.
Executive summary
The COVID-19 shock altered the course of the global economy and ravaged financial markets, prompting policymakers to step in quickly and with scale. Unprecedented monetary and fiscal stimulus, combined with signs of an economic recovery as lockdowns eased, triggered a rapid rebound in risk assets.
Economy
Massive global fiscal and monetary stimulus programs were announced, aimed at providing relief to households and businesses and ensuring the proper functioning of financial markets.
Fixed Income
Global central banks supplied substantial monetary support by slashing short-term interest rates and expanding balance sheets by trillions of dollars.
Equity Markets
Our scenario analysis suggests further modest upside for stocks is possible as long as investor confidence stays elevated, inflation and interest rates remain low, and earnings rebound to their long-term trend.
Asset class commentary
Global economies were severely impacted by government imposed lockdowns that shuttered businesses and curtailed consumer activity. As a result, we slashed our growth forecasts and they are now mostly below-consensus.
The euro and yen are likely to benefit most strongly during the U.S.-dollar decline, while the Canadian dollar and British pound lag.
Central banks in emerging markets have loosened monetary policy to support domestic demand.
The Canadian dollar has been more resilient than other commodity currencies since the onset of the pandemic.
Regional preferences
Market views
Direction of rates
Emerging markets outlook
There was substantial financial-market volatility over the three-month period as the world faces its worst economic crisis since the Great Depression. As governments focus on restarting the economy, stocks have rebounded in recent weeks because investors do not want to miss the economic recovery when it comes.
