RSM’s sentiment indexes are showing signs of once-panicked markets now settling, as government restrictions are eased and moderate levels of certainty show signs of returning, albeit limited and at a rate that continues to frustrate equity markets and sectors.
The firm’s Financial Conditions Index, an aggregated performance indicator of currency, bond and equity markets, continued its steady climb from a low of -4.0 below normal stress levels in early April, to a reading of -0.9 at the close of markets on Friday.
RSM’s separate Market Stress Index, which measures wider financial and economic stress or risk since the UK’s departure from the EU, also indicated reduced levels of stress as it continued to climb down from the enhanced stress of 5.0 standard deviations above normal implied stress levels, to a reading of 1.8 at the close of markets.
Back in early April the latter index recorded by far its steeped and most protracted spike in negative sentiment since the metric was introduced, as coronavirus fears intensified.
Simon Hart, partner and head of International at RSM, comments: ‘Both our Financial Conditions Index and Stress Index are starting to show signs of sentiment recovery as lockdown slowly eases in the UK. Nevertheless, as we have been advising businesses, this is no time to let improving sentiment influence rash decision-making. The real economic recovery won’t start until after we’ve hit the bottom of the curve barrel. Q2 GDP figures in July will give us a clearer indication of where the economy sits in what the BoE termed as a likely V-shaped recovery. We, on the other hand, foresee a curve more resembling the Nike swoosh, reflecting a more protracted journey out. The start of that recovery might not have started yet and regardless, it will be a bumpy road in between.
‘What the past few weeks have taught us is that the Chancellor will need to set in place a more robust set of fiscal outlays and creative monetary policy to address the current crisis. The 6 July 'fiscal event' would imply that Government has recognised that need, as financial conditions in the UK drop to levels not seen since the 2008-09 global economic downturn.
Simon Hart and Joe Brusuelas, chief economist at RSM, will present a ‘Global Economic Update’ at the upcoming Global Trade Conference hosted by the Great Birmingham Chambers of Commerce at 2pm on 24 June 2020.