Headwinds prevail as economic crisis grinds on

Unemployment poses a huge challenge for markets around the world, with the US unemployment rate expected to hit between 15-20%, off its current levels of 4-5%.

“It is a real challenge for markets to look through that,” said David Bassanese, Chief Economist BetaShares.

Speaking at a BetaShares webinar titled ‘Navigating the virus crisis’, Bassanese said the Australian Bureau of Statistics reported a 3% decrease in the numbers of Australians with jobs during March and expected unemployment to grow from 5.2% to 8.5%, lower than the Reserve Bank of Australia’s forecast of a 10% unemployment rate.

According to Bassanese, both rates are lower due to the positive impact of the Government’s economic spending packages.

“It [unemployment] would have hit 15% without the wage subsidy,” he said. “People-type businesses such as retailing, food services and hospitality have been hit very, very hard.”

Oil prices took a beating in April due to an economic and slowdown which impacted oil demand and near term future contracts for oil.

“They went negative because no one wanted oil to be delivered and then had the associated storage problems if they did because there was no demand,” explained Bassanese.

Investors continued to take shelter in tech stocks such as Netflix and Google, who are also not expected to avoid a decline in their earnings, meanwhile bond yields have not yet rebounded, with 10-year US bond yields at 0.6%.

“The bond market is not bad at sniffing out a rebound, but there are no indications as yet.”

Gold continues to hold up pretty well providing investors with a defensive or different asset class exposure.

While Bassanese is hoping for V-shaped recovery, he said it will more likely be U-shaped with Q2 incredibly weak followed by a bounce back in Q3 where although GDP might be positive, growth will not kick in until Q4.

“There is a lot of uncertainty in markets with a very uncertain period ahead.