COVID-19: Daily Dashboard

investment insights

COVID-19: Daily Dashboard

Three levels of response to contain the current shock to H1 2020, limit defaults, and avoid an unemployment spiral

 

  • A public health response: to contain the spread of the virus, and gain time so that cases do not overwhelm hospital capacity
     
  • A monetary response: to avoid a funding shortage and ensure liquidity at a cheap borrowing cost
     
  • A fiscal response: perhaps in the form of tax rebates or income transfers, to partially shield economic actors from the temporary blow.

New infections, total infections, total deaths, fiscal stimulus and monetary policy as of 25.03.2020

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Public health

  • In Italy, the rate of increase in infections has fallen from 15% before the weekend to 7.5%, while new recoveries reach a high and new infections drop again

 

  • In Spain, the situation remains worrying despite lockdown measures as death toll now surpasses China’s and new infections are not slowing

 

  • Switzerland has now closed its borders with all other Schengen member-states beyond France, Germany, Italy, Austria and Spain, which were already shut. Testing capacity is ramping up as health minister says “Switzerland will soon have done more tests than any other country”

 

  • In France, the lock-down that was imposed for two weeks at first, will now be extended for another six weeks by the government

 

  • South Asian countries have seen a meaningful spike in confirmed cases recently and relatively high case fatality numbers (Indonesia and Philippines) while North Asian countries, excluding Japan, are responding to a steady increase in imported cases. Locally transmitted cases with unknown causes remain under firm control in North Asia.

 

  • Trump tweeted he wants the economy to reopen by Easter (April 12). His words cannot be taken as a hard deadline but opening up too soon may risk having to return to heavy-handed containment measures and an economic shutdown strategy in the coming months, especially if broad-based testing mechanisms are not in place

 

  • Indeed, the inability to produce tests on a large scale remains a constraint to lifting economic lockdowns. South Korean or German testing and tracking strategies should be applied globally as soon as lockdown periods prove effective in containing the exponential phase of new infections. Without enough tests, medium term strategies to avoid uncontrolled second or third waves may prove ineffective.
The inability to produce tests on a large scale remains a constraint to lifting economic lockdowns

Monetary response

  • The Swiss National Bank is suspending capital buffers for banks to increase loan potential as a support for the economy and set up a COVID-19 Refinancing Facility (CRF) allowing banks to obtain liquidity from the central bank, which is secured by federally guaranteed loans with no upper limit

 

  • The European Central Bank has released the legal details of the EUR 750 billion Pandemic Emergency Purchase Programme (PEPP) announced last week. The legal documentation confirms the expectation that the 33% issue and issuer limits on past asset purchase programmes will not apply to PEPP.

 

Fiscal response

  • The US Senate unanimously approved the fiscal stimulus legislation worth $2 trillion, which will now be sent for a vote in the House of Representatives on 27 March. The package includes aid to businesses, expanded unemployment benefits, direct income transfers to households and healthcare system funding

 

  • Pressure is mounting for a common debt instrument at a European level. Creditor countries, especially the Netherlands and Austria, remain resistant. This would be the missing piece of the Euro project, a mutual fiscal framework backed by a euro safe asset that could be purchased by the ECB in a crisis, to finance projects in the real economy
Pressure is mounting for a common debt instrument at a European level
  • After the German parliament approved a support package totalling about EUR 750 billion, of which 400 billion are loan guarantees, Finance Minister Scholz has raised the possibility of further stimulus once the recovery takes hold

 

  • In Japan, Shino Abe’s cabinet is reported to be considering a new fiscal stimulus package of JPY 56 trillion (~USD 500 billion), which would be roughly equivalent to 10% of Japan’s GDP. The figure is not officially confirmed yet.

 

Portfolio positioning

  • Based on the substantial public health, fiscal and monetary measures taken so far, we maintain our scenario of a material but transitory shock, but increase portfolio hedges (Japanese yen and gold) to navigate the current volatility episode. In addition, we regularly re-adjust the equity exposures to take account of the market drift after the declines, so that portfolios can benefit from the eventual recovery.

 

We maintain our scenario of a material but transitory shock, but increase portfolio hedges (Japanese yen and gold) to navigate the current volatility episode

New infections as of 25.03.2020

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