2020-03-21 JP mogan(1)

Answer to 10 common questions on COVID-19,Oil & US elections （1）

JP摩根3月11日关于病毒、石油和美国竞选的10个问题分析

Section1：When will COVID-19 peak?

A peak then slowdown in the daily infection rate to low single digits is more improtant for market than a peak in the total number of infecions , because the rate is what allows investors to project an end to cantainment measures driving the growth / earnings downgrades.

China`s infecion rate fell to 1% about two months after the inital outbreak , but only after the strictest lockdown in mordern history .Other countrieshave been slower to announce lockdown or have opted for either targeted or voluntary measures,which is why infection rates might ont suffcientity until April / May.

Section2:Will the virus trigger the GDP and /or earnings recession?

Technical recessions are just two consecutive quarters of the negative GDP growth. One-quartar contractions are common due to epidemics, natural disasters and climate events.It is easy to envision a two-quarters contraction of the containment measures put in place in Q1 must extend to Q2 in order to slow the infection rates.Earning recessions (2015) and earning stagnations can occur without GDP resscesions.The US has never experienced a contraction of just two quarters.

When the economy contracts, it does so for three to eight quarters due to underlying imbalances in the household and/or corprate sector that require much more time to corrcet.

The US economy doesnot exhibit the large imbalance across the sector currently.Also, the nature of the primary shock (a respiratory virus) seems inherently more seasonal than previous shock. So a technical recesstion is a reasonable senario but a fundermental one that extends for several quarters is not.