After June 16’s rally on the better-than-expected figures of retail sales as well as the encouraging study of a certain drug to treat COVID-19 patients, the S&P 500 has rallied 40 percent from its closing low and has dropped just 8 percent from the February peak.
Obviously, disasters are not necessarily devastating to the financial markets. That is worth keeping in mind when considering the new report from the Deutsche Bank which looked at the next huge tail risk for markets.
Henry Allen and a group of analysts say that there’s at least a 1-in-3 chance that at least 1 of 4 major tail risks will happen within the next 10 years:
- A globally catastrophic volcanic eruption
- A major influenza pandemic that could cause the death of over 2 million people
- A global war
- A serious solar flare
(The current pandemic has killed over 500,000 worldwide already.)
If the time frame is 2 decades, then there’s a 56 percent chance of one of the above-stated disasters happening based on various risk assessments and studies. Earthquakes were removed from the list since they are more of local event.
The one rarely discussed, solar flare possibility, is because its last severe case was way back in 1859. However, the Deutsche Bank analyst team finds that to be more likely than the major global war happening.
The report said that there could be some serious power outages as electrical power grids become disrupted. In turn, it will have a knock-on effect throughout the economy as the critical infrastructure becomes unable to run properly.
If it impacted medical care and hospitals, then lives could be lost. Communications would also be disrupted, GPS satellites could face extensive interference, affecting those that rely on accurate location services, for instance, aircraft, as well as many payments, would become dysfunctional.
Citing a study that assessed the probabilities of major solar flare happenings in a decade is 12 percent, which in turn a 40 percent chance that it can take place in 40 years, so you might want to keep a few spare batteries around.
These major events also tend to have ripple effects, just as the current coronavirus crisis has resulted in the fraying ties between China and the US.
The analysts did not suggest any investment strategy with their findings, however, judging by the current environment, buying stocks is perhaps the best response.
Jerome Powell, Chairman of the Federal Reserves, faces the lawmakers on the House Financial Services Committee, after encountering senators and stating that the central bank was not like an elephant rummaging through the corporate bond market.
To sum up, the comments made by Powell, vice chairman Richard Clarida and Robert Kaplan, President of the Dallas Fed, all 3 indicated that the economy could show a strong number for a few months as it reopens.
However, when activity flattens out, the worry now will be that the economy would still be far from full employment.
Over 60 percent of commercial flights were canceled by Beijing and raised the alert level amidst the second wave of COVID-19 outbreak. However, Vice President Mike Pence claimed that there is no coronavirus second wave.
HSBC Holdings said that it is going to resume its plans to remove 35,000 jobs that it had shelved temporarily. Meanwhile, Facebook said it would allow users to block the political ads on its platform. The Justice Department will announce a legislative proposal that will limit some of the legal protections for Twitter and Facebook.
Norwegian Cruise line last June 16 extended voyage cancellations through the 10th month of 2020, news which weighed on the rival cruise operators including the Royal Caribbean Cruises and Carnival in premarket trade.
The US housing starts increased a smaller than the forecast of 4.3 percent in May, meanwhile, permits had a surged of 14.3 percent.
The Markets and Charts
The US stock futures pointed higher while crude-oil futures slipped as well as gold. However, the dollar rose against the Pound and Euro.
The annual statistical energy review of BP has fascinating data, even if the numbers represent the world before the COVID-19 crisis ravaged the global economy. The energy consumption per individual is still bigger in the US than anywhere else in the world, even though it’s been falling for the last 20 years.
In 2019, average global energy consumption had an increase of 0.2 percent on Middle Eastern and the Asian-Pacific demand.