investment insights

    COVID-19: Daily Dashboard

    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 at 30.03.2020

    DailyUpdateIS_ArticleLOcom_Graphic1.jpg

    * LO estimate or reported figures
    Sources:
    Bloomberg, IMF, World Bank, Lombard Odier calculations
     

    Public health

    • The World Health Organization reported on 30 March that Europe’s outbreak, mainly driven by new infections in Italy and Spain over the past three weeks, may be nearing a peak as containment measures implemented early in the month start to take effect

     

    • Italy's registered cases rose by 4.1% yesterday, the lowest since the start of the outbreak. The rise in admissions to Intensive Care Units was again low at around 2%. Italy reported 812 new deaths; this is expected to be the last measure to show a decrease. While the decree outlining the country’s current lockdown is in effect until 3 April, the health minister has pointed to an extension until at least the Easter weekend of 10-12 April 

     

    • Russia, which reports close to 2,000 cases, has joined the list of countries implementing lockdown measures, with Moscow now at a standstill and the country’s regions invited to take follow suit

     

    • In China, the new cases of Covid-19 were more or less all brought in by Chinese nationals returning home. So far, the second wave is still limited.

     

     

     

    Accoding to the WHO, we may be nearing a peak as containment measures implemented early in the month start to take effect

    Monetary response

    • The European Central Bank bought EUR15.6 billion of bonds under its emergency Pandemic Emergency Purchase Programme (PEPP) in just two days. Extending this pace would mean EUR39 bn per week, or EUR156 bn per month, in addition to the EUR20 bn Asset Purchase Programme and EUR12 bn from an extra envelope. This is unlikely to be sustained, but shows that the ECB is substantially front-loading its purchases.

     

    Fiscal response

    • As we have pointed out before, the US package is the largest in the country’s history. However, the USD150 billion in aid to federal states is probably still insufficient. As a point of reference, federal grants to states ran about USD100 bn in nominal terms in the 2009 stimulus package (i.e. USD50 bn less). However, today the economy is larger and this crisis worse than the 2008-09 recession in terms of first-half GDP contraction, so state aid will probably have to be higher

     

    • Meanwhile, discussions about a “Phase 4” package are already underway, with Speaker Nancy Pelosi yesterday raising the possibility of including infrastructure in a further bill

     

    • The Eurogroup has scheduled a meeting for 7 April. This is the forum for the euro area’s finance ministers to deliver proposals for a coordinated fiscal crisis response, an important item left unanswered at the last leaders’ summit.
    As we have pointed out before, the US package is the largest in the country’s history

    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. 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 have taken the opportunity of improved market conditions to enhance the portfolios’ liquidity profiles by reducing our high yield exposure. We are keeping the proceeds in cash so that we are ready to react rapidly to any change in outlook
       
    • We have also increased our GBPUSD allocation in sterling mandates by 2% following the historic collapse of the currency to levels that, in our view, were not consistent with underlying fundamental drivers.

    New infections as of 30.03.2020

    DailyUpdateIS_ArticleLOcom_Graphic2.jpg

    Wichtige Hinweise.

    Die vorliegende Marketingmitteilung wurde von der Bank Lombard Odier & Co AG (nachstehend “Lombard Odier”) herausgegeben. Sie ist weder für die Abgabe, Veröffentlichung oder Verwendung in Rechtsordnungen bestimmt, in denen eine solche Abgabe, Veröffentlichung oder Verwendung rechtswidrig ist, noch richtet sie sich an Personen oder Rechtsstrukturen, an die eine entsprechende

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