Fed and Banks: acting like brothers from diff mothers.

1. Fed bond and credit buying has slowed down signalling recovery in the debt markets. The Fed holds its stance to calibrate its buying program to the rising or falling fears in the economy.

2. Wuhan and other Chinese provinces are laying the path to guide the world how the economy and business would look post virus. China is showing strong signals of recovery in all spheres, debt, FX and equity markets. IT manufacturing and PMI figures have shown the biggest jump of over a decade. This is parallelly affirmed by the strong 10% one week jump in the SSEC index.

3. Even though the national lockdown was lifted on 8th April, data shows weak signs of things reverting to pre virus levels, which means that we will quickly recover once this settles but there will be small outbreaks periodically, which wouldn’t affect the broad economic direction.

4. Now the govt and Central Banks have started thinking on how and when to lift the large scale stimulus packages. The big question is from where shall they unwind support, that still continues to operate smoothly.

5. The support has to be rationalized and given away with caveats. But given all the discussion of the tapering stimulus, governments have to be equally vary of any future dislocations and thus might have to kickstart support again.

6. Though banks have done remarkably well in supporting the Central Banks and federal bodies to control and aid virus support measures, they are in an even more tough and uncertain position, given the rise of technological advance shadow banking and payment services erupting across the world in diff sizes and shapes. The tech driven business models could redefine banking to new horizons.

7. The equity market rally over the last 2 months have been primarily attributed to the rising optimism among investors that Central Banks will restore inflation targets and henceforth restore economic stability before expected.

8. The difference between the nominal treasury securities yield and the yield on TIPS is typically taken as a direction to the inflation expectation. In times of crisis, TIPS tend to underperform nominal ones, as the real rates go negative.

9. US weekly average earnings rose steeply to highest ever over the last 4 decades, this can be attributed to the steep fall in low wage earners and thus raising the average earnings for the highly paid ones. This indicates the potential spillover effect of the pandemic on economic disparity.

10. The US is set for a lower dollar and higher inflation, given the crisis benefits and lower sticky interest rate environment. This will support higher asset prices. The loan loss reserve levels at banks have touched levels like the 2008 crisis, but this time we have ample liquidity in the US banking system.