With uncertainty over when this ordeal will be over, the economy may have to adapt to new conditions
Markets open higher, but recovery will not be a quick fix
- Oil rises 12% in early trading in response to Russia / Saudi Arabia deal being teased to the market
- This ordeal could change consumer behaviour resulting in a need for the economy as we know it to adapt
- The virus may have lasting effects that some investors are overlooking and therefore it’s important to consider this
Markets opened marginally higher this morning with oil major Royal Dutch Shell leading the charge, as rumours surrounding a Russia/Saudi Arabia deal was teased to markets by President Trump. However, this is just one piece of the big puzzle. In the UK, as Covid-19 testing is expected to be rolled out at a greater scale, we should start to see the true extent of how the virus has spread and therefore help achieve greater economic efficiency as people will know objectively whether they need to be self-isolating. Once this has been completed, we may start to see the peak in cases and potentially may start the long road to recovery.
One thing that is certain is that future recovery will not be a quick fix. It may take longer than expected for the economy to restructure itself and we still don’t know the true impact on the consumer. This ordeal could change consumer behaviour, resulting in a need for the economy as we know it to adapt. For example, in the travel sector we could see consumers putting off holidays out of caution for the near-future. The virus may have lasting effects that some investors are overlooking and therefore it’s important to consider this.
There is no question that cash is important in current times. Despite investor disappointment, it’s logical for certain businesses to reserve dividend distributions in periods of uncertainty. We still do not know how long this could play out, therefore it is best to be safe than sorry. However, in the cases of some of the big banks who were mostly forced to cut dividends yesterday, we may start to see a dislocation of views between bank executives and the regulators which grudgingly may cause further issues down the line.
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