Does the consensus work anymore?

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This week Michael Metcalfe, global head of Macro Strategy at State Street Global Markets discusses the unprecedented uncertainty across a range of US GDP forecasts.

 

“Whilst the market took the sharp decline in US GDP during the first quarter (Q1) of 2020 relatively well, there is far worse data to come. The current consensus for US GDP in the second quarter (Q2), is for a contraction of more than 25 percent on an annualised rate. With this in mind, the reaction to the Q1 data and the consensus for Q2 could suggest that the worst case scenario is already ‘discounted’, but caution is required.

 

“The data is so crazy that the uncertainty around these estimates is also unprecedented. Even if we remove 50 percent of the most extreme forecasts, the range of estimates for Q2 is a calm 12-percentage points between -30 percent and -18 percent. Such uncertainty is more than four-times the norm, even during a recession. This significantly weakens the normal modus operandi for financial markets, as simply picking the median forecast is now much less representative of the ‘consensus view’, which should also be reflected in market prices. Even though the markets need to process incoming data, relative to forecast has rarely been higher, it has also never been so difficult.”



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