Markets expecting an early coronavirus recovery are ignoring the global economic and political mess

The knowledge that a V-shaped recovery is off the table has not dissuaded markets from surging in expectation of further injections of central bank liquidity

Political leaders are selling snake oil to secure power and central bank governors are pandering to their whims

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A man passes the New York Stock Exchange on May 26. Stock markets are curiously surging despite corporate earnings being dragged down by the Covid-19 pandemic, suggesting they expect central banks to continue injecting liquidity well into the future. Photo: AFP

Published: 1:00am, 15 Jun 2020Updated: 1:06am, 15 Jun 2020

A second wave of Covid-19 is coming, and it could well take the form not only of a feared new round of infections but also a shock wave stemming from frantic official attempts to insulate investors from the economic and financial disruption the pandemic has caused.

This new wave is likely to wash up in the shape of a renewed stock market slump. This, in turn, will damage the global financial system and be transmitted from there into the real economy – in effect a financial tsunami.

The times are “out of joint” as Hamlet said, as shown by the fact US stocks measured by the S&P 500 index regained their 2020 highs on the same day last week that the World Bank projected the global economy to shrink by a shocking 5 per cent this year.

As International Monetary Fund managing director Kristalina Georgieva put it in a speech to the US Chamber of Commerce: “Never in our history have we seen such a tremendous reversal of fortunes for so many. And we have never had such a truly global crisis as the one we face now.”

Or, as World Bank vice-president for equitable growth, finance and institutions Ceyla Pazarbasioglu said, “This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars.”

What sense can it make for stock prices to be soaring when the corporate earnings that are supposed to underpin those prices are disappearing into a black hole – something that will send equity yields plunging and price-to-earnings ratios soaring?