Virus,Vaccineandintuitions

For India as the number of cases inch up to the 100 K mark, the government has decided to extend the lock down with some restrictions. With the lock down extending to end of the month, the estimates of GDP growth/de growth have been revised. The economic output is expected to contract further. In other parts of the world, countries continue to embrace the idea of easing the lockdown. Italy, which was once the hotspot, has announced the starting of flights from next month. One first order impact of all these announcements is an increase in oil demand. Unsurprisingly, Brent Crude trades at 33$/bbl up 10% from the previous close.

The US Fed Chief Jerome Powell, in a televised interview on Sunday, reassured the markets that the Fed has enough ammunition up its sleeves to extend or deepen the current liquidity programs. He added that the recovery would depend on the development of a vaccine and people feeling confident in venturing out. On the negative interest rates scenario he took the same lines as other Fed Governors that it is not something on the radar right now as it distorts the market without providing any added benefit. He showed concern about consumer behaviour in case the pandemic persists.

In his book Thinking Fast and Slow, Nobel Laureate in economics Daniel Kahneman writes about how human behaviour is formed and how we develop our intuition. He writes that we have inherited from our ancestors a great facility to learn when to be afraid. According to him even one experience is often sufficient to establish a long term aversion and fear. Visceral memories of a dubious dish haunts us for years and is behind our reluctance on returning to the particular restaurant. So how the accumulated experience of being fired or furloughed from a job would impact the intuition and consequent behaviour of an individual is not difficult to decipher. His choices would change as he would keep referring back to the visceral memory of an out of job locked down home quarantine. For Powell, close to 36 million Americans are currently undergoing that transition. Closer to home, as people tread thousands of miles back home on foot, our collective intuition is surely getting a makeover.

In other news, expectations of a possible flare up of trade tensions between US and China would keep the risk on assets on tenterhooks. On Friday the US govt said that they will restrict a Chinese chip maker from using US technology and software to design its semiconductor chips. The move is seen as a first salvo in restarting the trade conflict. The pound sterling fell and is trading around 1.21 after the BOE Chief economist said that the bank is looking more urgently at options such as negative interest rates and buying of riskier assets.

Domestically, the rupee opens down currently at 75.84, stock markets are also in the negative whereas the bonds are trading flat. The details of the stimulus have been announced and the market has taken into account that no further increases in borrowing (apart from extra borrowing already announced) will be required.