Pandemic Causes ‘unprecedented’ fall in global trade

Valentina Romei, Financial Times
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April data reveal that world trade has experienced an “unprecedented” decline as a result of the Covid-19 pandemic. The volume of global trade in goods dropped 12.1% in April, making it the largest monthly contraction since records began in 2000. All regions reported a decrease in trade with the eurozone reporting the largest drop. Trade volumes fell 20.1% in the eurozone in the month of April while trade volumes in the US dropped 16.8%. Trade volumes worldwide were dragged down by production and logistics disruptions as well as falling demand for imports.

The International Monetary Fund (IMF) has forecasted that the volume of goods and services trade will shrink by 12% this year. Though there are some early indications that the global economy is beginning to recover, it is necessary that world leaders and policymakers cooperate to resolve trade tensions and work together in order to promote a worldwide recovery from the Covid-19 crisis. 

The World Should Think Better About Catastrophic and Existential Risks

The Economist
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The world has a history of throwing curveballs – geomagnetic storms, supervolcanic eruptions, pandemics. Given the myriad stumblings and bumblings of modern society in dealing with the coronavirus pandemic (thus far a comparatively mild catastrophe when compared with such events as a nuclear winter), it is unsurprising that some have called for an increased scrutiny of “existential threats” and our capacity to deal with them. Early warning systems exist for some events – solar electromagnetic events, nuclear wars, and supervolcanic eruptions, to name a few – but the constitution and execution of what preventative measures that should be taken in such events is less certain. The effectiveness of these responses is often dependent on the experience of the people managing them – for instance, countries which were hit hard by SARS have typically had a more effective response to the pandemic than those which were not. While events of world-shaking magnitude may seem confined to the distant future, it remains our duty to do what we can today to eliminate the threats of tomorrow.

The Stock Market Is Set for One of Its Best Quarters in Decades. Time to Prepare for the Worst.

Randall W. Forsyth, Barron’s
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The past three and a half months have seen one of the largest stock-market rallies in decades, but the rebound may be at an end. Speculative trading has seen a meteoric rise over the period, with a record number of trading accounts opened. Historically low interest rates have driven Treasury yields to near-zero levels, which many have used as justification for the seeming disconnect between near-record market highs and a double-edged sword of rising unemployment and surging coronavirus cases.

 Yet these rates are a warning of a deeper issue – as the Fed shores up the corporate bond market, investors seem to be ignoring the current profit collapse, reminiscent of the 2000 and 2008 bubbles. While the market seems poised for a correction, the run on tech stocks may last a while longer, indicating the need for a strategic options hedging strategy. As uncertainty mounts, the byword for the wise investor remains caution.

Small business: a canary in the US economic coal mine

Rana Foroohar, Financial Times
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As the debate on the shape of the US economic recovery rages, small and medium businesses remain the best indicator of its trajectory – and they are in trouble. More than 70% of small businesses have received some form of emergency aid, which ends this month (barring another wave of stimulus). With nearly half the US workforce employed by small businesses and the Paycheck Protection Program returning to pre-pandemic levels at the end of July, the plight of small business creates a significant risk for the macro economy. At the same time, the Federal Reserve has been pumping money into large business, creating a huge disconnect between Wall Street and Main Street (and deepening inequality, as many personal services firms are disproportionately owned by minority entrepreneurs). Nearly two-thirds of the 20M jobs lost since March come from small businesses, and few of the businesses that have survived the first wave expect to return to “normal.” Even as the stock market continues to reach new highs, the word on the street tells a different story – small business, the backbone of the American economy, is in deep trouble.