Coronavirus: Plan B – Hope for the best, prepare for the worst
At a Glance
The desk interprets the Nordea report as a warning that corporates and economies alike must brace for an extended period of uncertainty due to the ongoing impacts of COVID-19. Per the full note, the analysts highlight that lockdowns have inflicted unprecedented shocks on global GDP, with significant contractions in the US and EU, prompting a rethinking of strategies as firms enter 2021 and 2022. Notably, global GDP is forecast to decline by 3.5% in 2020, underscoring the depth of this crisis. However, leading Nordic corporations are set to face a challenging recovery with profits plummeting by 20% in Q2 and net debt rising 9%, with no imminent return to pre-pandemic conditions in sight. The trading landscape is poised for volatility as investors absorb these developments, particularly in affected sectors like travel and energy.
Key Takeaways
- 01COVID-19 has caused unprecedented economic disruptions worldwide.
- 02Global GDP is forecast to decline by 3.5% in 2020, exceeding previous economic downturns.
- 03Nordic corporations face significant profit losses and increased debt levels.
- 04The outlook for 2021 and 2022 remains uncertain with potential long-term sectoral impacts.
Full Analysis
What the desk is arguing
The desk frames this as a critical juncture for corporates preparing to navigate a precarious economic environment with the potential for a slow recovery. Analysts Johan Trocmé and Viktor Sonebäck at Nordea have raised alarms about a shock unparalleled since the 2008 financial crisis, citing significant GDP declines across major economies during the second quarter of 2020.
According to the report, Chinese GDP fell by 7% in Q1, while the US and EU experienced even more pronounced downturns of 9% and 14%, respectively, in Q2. As such, 2020 is now set for a 3.5% fall in global GDP, reflecting a contraction that expects to reshape economic strategies going forward.
Where it sits in our coverage
Currently, our internal consensus target for EUR/USD stands at 1.075, with a range from 1.04 to 1.12. Notable firms with differing forecasts include - jpmorgan: 1.10 for Mar26 - bofa: 1.04 for Mar26.
The desk's outlook aligns closely with jpmorgan, which concurs with expectations of prolonged market volatility, particularly given the emerging trends highlighted by the Nordea commentary. This positions our forecast towards the higher end of the consensus spectrum.
How other firms see it
Firms like jpmorgan support a cautiously optimistic view regarding recovery, while bofa is more bearish, anticipating weaker performance from corporates through 2022. This divergence reflects broader market sentiments around the sustainability of corporate earnings and economic stability post-COVID-19.
Market participants are encouraged to monitor related pairs such as USD/SEK and corporate earnings reports, which could reflect the real economic impacts articulated by Nordea. As firms grapple with growing debts and declining revenues, the interplay of currency fluctuations will likely be pronounced.
Market Implications
Traders should focus on the immediate implications of corporates' debt levels and the potential for volatility in affected sectors. Precise levels to watch include 1.075 in EUR/USD as a pivot point, while upcoming earnings reports could provide insight into how companies are adapting to these challenges.
From the original
Nordea On Your Mind Coronavirus: Plan B – Hope for the best, prepare for the worst 21-09-2020 Covid-19 has given an unprecedented shock to the world economy, as lockdowns caused sudden and sharp declines in demand, and we cannot safely assume that development of a vaccine or othe
Related speeches
4 itemsCapital markets discount a V-shaped recovery from COVID-19
The desk observes that capital markets may be overly optimistic regarding a V-shaped recovery following the COVID-19 pandemic, as highlighted in a recent discussion by Nordea on their market outlook. Despite lowered expectations prior to Q2 earnings announcements leading to a surprising rebound in Nordic company profits—averaging 20% better than estimates—investor reactions have remained cautious amid ongoing uncertainties. As institutional traders weigh recovery narratives, the desk advises vigilance on the trajectory of economic recovery and potential inflation signals as central banks maintain accommodative policies.
Podcast: Coronavirus – Plan B
The desk believes that while the economic recovery from the COVID-19 pandemic has been swift, significant uncertainty lingers regarding corporate resilience heading into 2021 and beyond. Per the full note from Nordea, corporates are urged to establish a 'Plan B' as the potential for optimistic consensus forecasts could falter. This perspective highlights a cautious approach amidst a backdrop where the anticipated vaccine rollout and therapy developments are not guaranteed immediate economic return. In essence, the focus is on maintaining flexibility to adapt to evolving market conditions.
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