2020-3-22 JP mogan（2）

Answer to 10 common questions on COVID-19,Oil & US elections （2）

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

Section3：Can monetary or fiscal easing prevent a recession?

monetary and sometimes fiscal easing have always been part of rebalacing process for economies and stabilization for markets.But the first moves are rarely sufficent to turn earings and asset prices if underlying adjustment has not occured in the economy.If valuations donot reflect decent a risk premium for recesstion and if investors havenot shifted from overweight to underweight cyclical assets.

Every crisis is defferent from previous ones in some ways.Since the current one intertwins the public health problem with overcapacity issues in energy markets,monetory and fiscal easing will support the growth evenually but are ont sufficient now.The public reponse must be board and strong enough to contain the outbreak within a short window(a few months),thus start the normalizing activities in spring(thus allow activities to start normalizing this spring).

Section4：How can Oil GO?should not a price collapse stimulate growth and support cyclicals

A globle oil market that is over supplied by 2bmd can trigger a price drop of 60% yoy, implying a dip to $20 high.A lower oil price boosts consumption evenually by transferring income form a few countries(oil producers) to the rest of the world with a high marginal propensity to spend.

But as the 2014-2016 OPED price war illstrated, when the deadline is this large and this quick, it brings more harm than good via lower the US capex spending and corporate profits in the shale sector;worse fiscal and balance in a handful of large EX economies.
Higher downgrade and defalut risk for US High Grade and High yeild Credit;Weaker EM currencies;and less EM central bank easing.