The trouble with the V-shape assumption of the recovery or any shape for that matter is that it requires life to return to some semblance of normalcy. In no small degree, we can assume that's not going to happen anytime soon, even as governments around the world are giving the nod to reopenings.
It seems unlikely that people will be keen to return to normal. People won't be too eager to visit crowded places. Look at M&M in China whose said sales were down a fifth from last year, despite restrictions having been lifted. I can't see how this plays better across Europe or the US especially around major cosmopolitan centers that were hit hardest by the outbreak.
I'm not even sure what the new normal is, let alone what it's going to look like after reopening. Countries with mass testing and tracking capabilities will emerge the fastest. But even then, it may be outdoor work that's allowed, while bars and our favorite nightclubs are last to reopen. Office workers may rotate in terms between home and office, the two groups not meeting except via webcam.
It's the technology that will change our lives as Big Brother becomes more intrusive. In some countries, individuals may be registered as immune, having had COVID once, having not had it yet, or being in a vulnerable category. Movements may be tracked and traced and life, as we knew, will never be the same.
The Consensus View For S&P 500
The consensus 'view' is that the S&P 500 will have another leg lower - perhaps not as far as to put a new lower-low in, but yes, an unwind of around 15% and back to approximately 2500-2600. So, if the break of 2800 sticks, we could see the VIX call skews rise as investors look for protection. And if the VIX goes up, stocks go down, and the US dollar bid returns.
Mixed Messages In North Korea
North Korean leader Kim has confused the market landscape a bit. USD/KRW opened bid with disappointing 20-day trade data and news of North Korea's Kim being in critical condition after his surgery. The pair gained more than 1% before gapping back lower on reports that this was not true. Price action has been very choppy, but USD/KRW remains supported in a 1220.5-1240.9 range. Equity outflows continue. If Kim is indeed in critical condition, South Korea could be in considerable geopolitical risk with no apparent successor in North Korea.
In Europe
The debate rages on about this Thursday's EU Summit. General expectations are bearish, i.e., no breakthrough on crucial details of the 'recovery fund.' The critical question is how to finance the fund: via pre-rate guarantees, EC bonds or EU budget, or some combination? Merkel's CDU seems to push hard against any mutualization elements, while the SPD is working hard with France, in particular, to come up with a compromise.
United Kingdom
The next phase of the Treasury's response to coronavirus will be how to deal with the middling but essential UK corporates. These are the firms not able to raise financing on public markets, access the Bank of England's COVID Corporate Financing Facility.
However, Sector-by-sector bailouts look the most likely route for the Chancellor, via debt rather than equity. Virgin Group is the first of these businesses to come forward. Aviation is a crucial part of the government's industrial strategy, and Virgin's owner Richard Branson has asked for a state-backed commercial loan to survive.
Crude Selling Surges
Oil is selling off despite the best efforts of the alliance between Saudi Arabia, Russia, and Donald Trump. That said, it was strictly a front-end affair as there is no marginal buyer and plenty of selling given huge inventories, lack of storage, and ~0 demand.
Oil companies can't even give Gasoline away, with prices below $1.00/gallon at some US gas stations.
So logically, why are petrol related currencies and oil stocks not getting hit to a more significant degree? The simple answer is when it comes to FX and equity markets, it's not where oil has been, but instead where it was going as traders are following the active back end contracts, not the front-end contracts.
The Yuan
USD/CNH traded higher following the broad dollar moves. There strong equity outflows contributing to the movement. The market remains very much illiquid, but if equity outflows continue, some liquidity should return to the CNH market; we could expect some retracement in swaps.