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CIBC Asset Management Perspectives—A shock to the system

It’ll be some time before we know the ultimate scale and duration of the COVID-19 disruption to economic activity and corporate cashflows. But in a move reminiscent of the Global Financial Crisis, we’re encouraged to see central banks have stepped into help by rolling out some of their heaviest artillery.

Asset class highlights

Equity: If the past is any guide, global equities will bottom well before a bottom in the global economy. Equity markets in 2009 hit their lows months before the worst data for employment and production.

Fixed Income: The U.S. Federal Reserve (Fed) will use unlimited quantitative easing to improve liquidity conditions, alleviate private sector funding pressures and limit Treasury selling by foreigners. To achieve these objectives, 10-year Treasury yields will have to trade between 0.5% and 1.25%.

Currencies: As the Fed takes measures to address the USD funding squeeze, the upward pressure on the USD will ease and the greenback will come under intensifying selling pressure.

China: To engineer a more V-shaped recovery, Chinese policy-makers will deliver more stimulus. This will include incentives to boost consumption and target infrastructure, particularly high-tech investment. Policy-makers are seeking not just a short-term cyclical revival, but progress towards long-term development objectives.

Read Perspectives Report

Perspectives Executive Summary

UPDATED! 10-year Long-Term Capital Market Returns

Perspectives Video Commentary with Luc de la Durantaye

Forecasting an Economic Recovery, podcast with Luc de la Durantaye