Zoom Out To Lunch

Bernard & Jarrod: A believable rebound?

WATCH: Bernard Hickey talks with Kiwibank chief economist Jarrod Kerr for the final time during the lock-down about whether the bounce-back on stock markets is justified given the economic damage still rolling through the global economy

Bernard Hickey talks to Jarrod Kerr in their last 'Zoom out for lunch' video about the bounce-back seen in global and local stock markets in the last month.

The S&P 500 stock index has bounced 25 percent from a three-year low hit a month ago. It now sits just 17 percent below its mid-February record high and is at levels last seen in June last year. That's despite estimates that US GDP could fall more than 20 percent in the June quarter, and more than 10 percent for the year.

They discuss with PIE Funds CEO Mike Taylor why stock markets have bounced, including confidence created by the arrival of the US Federal Reserve and other central banks with promises to "do whatever it takes" to stabilise markets and reduce the economic damage of the Covid-19 lockdowns.

Even New Zealand's stock market has bounced, although it is boosted by the outsized importance of Fisher and Paykel Healthcare and A2 Milk in the index. They have both benefited as exporters of products in high demand during the Covid-19 pandemic and as exporters who earn more when the New Zealand dollar falls.

They talk about the Reserve Bank's intervention here to pledge to buy up to $33 billion of central and local Government bonds, with the potential for more.

The wrap up with a look at whether the Government could go ahead with 'helicopter money' payments of $1,500 per adult, and whether this represented money printing.

They finish with a look at this chart from a Bank of England research paper in January, which shows how interest rates have trended down to zero percent (and potentially lower) over the last eight centuries, which may give central banks some comfort as they create money to buy bonds.

This concludes our daily 'Bernard and Jarrod Zoom out for Lunch' webinar series during the lockdown. 

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