COVID-19: Dashboard

New infections, total infections, total deaths, fiscal stimulus and monetary policy as at 03.05.2020

Sources: Bloomberg, IMF, World Bank, Lombard Odier calculations

Public health

• Daily data continue to confirm that the first wave of the epidemic is largely contained
   
• The second wave does not need to be as disruptive as the first, as reports from Asia seem to confirm
   
• Improved hospital and ramped up testing capacities, non-pharmaceutical interventions (social distancing and masks), plus the development of new tools to fight the virus such as antivirals that cut recovery time and block the virus, all significantly increase the chances of preventing additional lockdowns and therefore allow for reopening

• While it is clearly too soon to switch to a base case scenario in which a drug treatment or a vaccine is found, this would undoubtedly allow a more convincing reopening of economies, considerably strengthening and accelerating the recovery process
   
• Six vaccines have now reached phase 1 of clinical trials, and another batch of vaccines will likely enter phase 1 trials in summer. All four main types of vaccines (virus-based, protein-based, viral vectors, and nucleic acid) are under development

• South Korea concluded that apparent “re-infection” cases were in fact false positives due to the inability of rt-PCR (reverse transcription polymerase chain reaction) tests to distinguish between infectious virus and ‘dead’ virus fragment. The country has not reported infections in people in close contact with recovered patients.

Monetary and fiscal measures

• We had further support from authorities last week in the form of improved conditions for the European Central Bank’s TLTROs (targeted longer-term refinancing operations), although more was expected, notably on the purchase of high yield bonds, especially ‘fallen angels’ in what could have been an extended Pandemic Emergency Purchase Programme (PEPP)
   
• Last week’s euro area Bank Lending Survey (BLS) showed firms’ demand for new loans and credit lines surged in Q1. In this respect, TLTROs provide a crucial liquidity safety net, creating incentives for banks to maintain lending to the real economy and help mitigate the side-effects of negative policy rates. The ECB sent a positive signal by lowering the minimum TLTRO rate to -1.0% and created a new loan facility, called pandemic emergency longer-term refinancing operations (PELTROs)

• PELTROs will target mortgage lenders as well as credit institutions lending to public entities, supra-nationals and agencies. Mortgages and public loans are excluded from the pool of TLTRO-eligible loans, so PELTROs allow funding to a wider range of financial institutions
   
• Overall, loan guarantees and the ECB’s cheap loans to banks are having some positive effects, such as strengthening the incentives for banks to pass on the generous conditions to their customers, which should help the economy to recover as lockdown measures lift
   
• However, compared with the US Federal Reserve, the European monetary response remains more modest – and this is even more true in fiscal policy
   
• Over the last few days, the LIBOR-OIS spread has stabilised around 30 basis points. The improvement due to the flattening of the pandemic curve appears offset for now by concerns over the possibility of renewed US-China tensions. This needs close monitoring.

Economic impact 

• Lockdown-induced slump in GDP: The steep drop in Q1 Gross Domestic Product globally shows that social distancing and strict economic lockdowns worked, with hospitalizations now falling
   
• Euro area: GDP contracted by 3.8% in the first quarter, the worst quarterly performance since the single currency bloc was formed in 1999

• French GDP recorded the biggest quarterly drop on record in Q1 with a -5.8% contraction, and with the lockdown extended until 11 May, much more damage can be expected in Q2. The breakdown unsurprisingly showed that all sectors of the economy were affected by the fall in household spending, apart from food
   
• In Italy and Spain, real GDP contracted respectively by -4.7% and -5.2% quarter on quarter, with private consumption and investment declining
   
• Overall, these numbers imply that activity contracts by around 30% during lockdowns. This is why limiting the duration of the crisis as much as possible is key
   
• Though still below normal levels, China’s mobility indices rose strongly due to the national holidays, flight numbers for example increased by more than 10% in the past week, indicating confidence in public health

• With the exception of Japan, all flights increased as social distancing was eased
   
• More congested roads in Switzerland reflected the reopen of the economy. Nevertheless, the low air quality index suggests that production was still limited.

How quickly will activity return to normal?

• Lockdown measures will be lifted gradually and with some limits in place for many weeks and potentially months. The recovery will therefore be uneven
   
• It is encouraging that activity is resuming quickly in regions where restrictions are lifted (supply side in Asia). In fact, mobility indices from Google and Apple indicate that activity has been stabilizing since late April due to the combination of easing measures and lower public anxiety

The recovery will…be uneven

• Industry and construction activity may reach recover to 85% of pre-crisis levels within a few weeks
   
• Activity in the services sector will remain subdued for longer. This activity forms a bigger share of output in Europe and the US, in part reflecting consumer behaviour, which is likely to remain cautious until a medical solution is found
   
• Services activity will be constrained by a lack of tourists. Travel and tourism will suffer from the pandemic as consumers continue social distancing even after the peak of the crisis. This hurts European countries more than the US, where travel and tourism is a relatively small share of employment. World Bank data shows travel and tourism in Germany accounts for twice as many jobs as in the US, for example. Southern euro-zone member states will be hardest hit by the absence of tourism

• It will be difficult for activity to return to normal while restrictions are in place. Although the recovery will not be linear nor homogenous, we expect supply and demand trends to recover by about 80% by the year-end with the 20% remaining to be recovered by end-2021
   
• A full economic recovery depends on medical developments as a vaccine would allow a much more rapid recovery. Conversely, further second-wave lockdowns from second or third wave infections would wipe out efforts.

Portfolio positioning

• We maintain a relatively cautious stance. The success of confinement measures and the extraordinary central bank and government support worldwide has reduced short-term downside tail risks, but the upsides look limited from current levels, unless a major therapeutic breakthrough accelerates the opening process
   
• In recent months, we have increased the liquidity profile of our portfolios and strengthened portfolio shields, whilst keeping a slight underweight in equities. This also reflects the risk of low oil prices

• Post-pandemic, we expect to see sustained growth in IT and health care, which dominate US stock indices, and we have neutralised our US and European equities allocations.

New infections as at 03.05.2020

Public health

• The pace of growth in new infections appears to be declining for our sample of emerging market countries. A simple average of the daily growth in confirmed cases now stands at 4.7%
   
• However, there is much variation with South Africa, India, Mexico, Russia and Brazil showing growth in daily cases of between 6% to 8%, while Thailand and Malaysia record growth of less than 2%. The daily infection rate has fallen compared with last week for most of the 12 sample countries, with the exceptions of Brazil, Chile and Russia

• Russia has now overtaken Turkey as the emerging country with the highest total number of confirmed cases, while Brazil and India fall third and fourth respectively. The pace of new infections adjusted for population is also now the highest for Russia
   
• However, both Russia and Turkey have far higher levels of testing (27 and 13 tests per 1,000 people) compared with India, Indonesia and Mexico (less than one test per 1,000). Therefore, the higher numbers in Russia and Turkey may be a function of higher testing levels
   
• Russia’s lockdown has been extended until 11 May, while Turkey’s weekend curfews are set to continue, with schools remaining closed until end of May. South Africa’s lockdown remains in place but has now moved from level 5 intensity to level 4

• Malaysia, Poland and Chile have a lower number of confirmed cases along with higher levels of testing (between 5 to 10 tests per 1,000)
   
• Three countries in our sample – Thailand, Malaysia and Poland – are gradually re-opening from 4 May onwards. On the other hand, the remaining nine countries have extended lockdowns
   
• India’s lockdown was extended for a further two weeks starting 4 May, while Indonesia’s lockdown (now until 7 May) may be extended by another two weeks
   
• Mexico’s lockdown has been extended until the end of May while Brazil’s partial social distancing will continue until Q3 2020. Colombia’s lockdown has been extended until 11 May.

Emerging Markets: new infections, total infections, total deaths, fiscal stimulus and monetary policy as at 03.05.2020

Sources: Bloomberg, WHO, IMF, World Bank, Lombard Odier calculations

Monetary and fiscal measures

• In Asia, Malaysia’s central bank is expected to cut interest rates on 5 May for the third time this year. Malaysia lowered its overnight policy rate by 25bps to 2.5% and slashed the reserve requirement ratio by 100bps at its previous meeting on 3 March
   
• In Latin America, there are central bank decisions in Brazil, Chile and Peru. Brazil’s central bank is expected to make a 50bps policy rate cut on 6 May. Chile and Peru’s central banks are expected to keep interest rates, already near the zero lower bound, unchanged

• Today, Brazil’s lower house is expected to hold a first-round vote on a constitutional amendment that sets a separate budget for coronavirus-related measures and allows the BCB to purchase public and private bonds in the secondary market. Congress may also vote on legislation with negative long-term fiscal impact.
   
• Last week, Colombia’s central bank cut interest rates by 50bps to 3.25%. This week’s release of meeting minutes should support expectations for the central bank to continue gradually cutting interest rates
   
• In central Europe, the Czech Republic’s central bank will likely cut the policy rate by 50bps to 0.50% this week. Elsewhere, after the Hungarian central bank­­­ moved to QE, it is set to make its first bond purchases this week. The central bank will buy government bonds and mortgage notes.

 
Economic impact­­­

• Using a weighted average of growth for BRIICS ex-China group (Brazil, Russia, India, Indonesia and South Africa), growth stood at 3.50% at the end of 2019. Using the International Monetary Fund’s latest forecasts, the group is expected to contract 2% in 2020 before expanding 5.5% in 2021.

Emerging markets - new infections as at 03.05.2020

Sources: Bloomberg, WHO, IMF, Lombard Odier calculations

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