It is difficult to believe that the global selloff has run its course. Covid-19 is a global problem that has yet to be truly reflected in financial markets.
We are seeing empty international airports, slowing industrial activity and manufacturing supply chains crippled by quarantines and factory closures, as well as travel restrictions.
Given we are still very much at the containment stage, the longer-term global slowdown must be far more severe than previously estimated – Goldman Sachs estimates this at 2 per cent, but it is likely to be significantly lower – which is not as yet being priced in.
In terms of central bank action, so far it has only really been the Fed that has stepped into the breach. This is largely because of a reticence among other central banks to act when they have less room to manoeuvre.
In repairing the damage from the last financial crisis, most central banks have largely exhausted their stimulus tools. For sure, the banks will move, but only when really necessary for this will take many of them into unconventional territory, where results are not guaranteed.
Encouragingly, if the numbers are to be believed, it appears that new Covid-19 cases in China are levelling off and industrial production has restarted, yet the rest of the world is far behind this curve.
The reality is that the impact has yet to be truly felt. Markets have seen a dramatic fall, but these have been from record highs. It cannot be long before we start to see the real impact on markets. This is a very real global slowdown, which could easily knock the global economy by 5, 10 or 15 per cent, if not more.
We have already seen the likes of Apple, Microsoft and P&G warn of weaker-than-expected profits from China exposure, but what about global exposure? We will soon be seeing a spate of profit warnings.
Without doubt, certain sectors will be more resilient than others (travel and automotive in particular are set for hard times), but even when the cases in the West level off, it will still take multiple months to get the global economy back onto all 12 cylinders.
Perhaps there is a lesson here about our over-reliance on global supply chains, but there is also a new reality that companies need to face up to.