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Market Outlook – Q3, 2020

July 29, 2020

Three in One
▪ The U.S. and global economy entered a severe recession late in Q1 as evidenced by rapidly rising jobless claims, unemployment, and the dramatic drop-off in global trade and GDP growth. We expect growth to stabilize in 2H but to recover slower than consensus given the poor health of the economy and credit markets leading up to the crisis.
▪ Global inflation will decline with demand during the recession and then likely increase in the recovery. Excessive debt level s will subdue inflation until MMT-funded “helicopter money” becomes ongoing policy. This structural change may take as long as until the next general election
in 2024, but we believe it may be inevitable given there is no political appetite or will for the alternative.
▪ Global monetary policy has “crossed the Rubicon” with implications for l-term real growth (lower), risky assets (higher) and alternative currencies (higher).