investment insights

    COVID-19: 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, gain time to avert overrun hospitals, ramp up testing and prevent “new waves” after reopening
    • A monetary response: to prevent a funding shortage, keep markets functioning and ensure abundant liquidity at low cost
    • A fiscal response: to compensate households and companies for losses stemming from lockdowns, contain rise in unemployment and ensure a rapid recovery.

    New infections, total infections, total deaths, fiscal stimulus and monetary policy as at 17.05.2020


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

    Public health

    • Key Covid-19 trends continue. In most continental European countries, infection rates continue to trend lower, with daily case growth now below 0.5%. This has allowed governments to start lifting containment measures, taking the first step towards reopening their economies. The UK and the US are lagging further behind in the path of the epidemic with case growth closer to 1.5%, and consequently lag in their reopening
    • With much of Western Europe looking to reopen parts of their economies, we have now seen weeks of daily case growth under one percent in countries such as Italy, Spain, France, Switzerland and Germany. We are monitoring case numbers now that the governments are relaxing restrictions. The obvious risk is that renewed waves of the virus, reviving people’s fears, would be a big negative for the economy
    In most continental European countries, infection rates continue to trend lower, with daily case growth now below 0.5%.


    • In Asia, where the process of dealing with the epidemic is more advanced, there have been occasional clusters of infections. But authorities have been proactive in taking the appropriate measures needed to control these. This follows a well-established “hammer and dance” process of first bringing down infection rates, and then containing small outbreaks. Singapore’s cluster management, or the more recent measures taken by South Korea, fit this framework.

    Monetary and fiscal measures

    • The LIBOR-OIS spread has narrowed to 26 basis points, the narrowest since the beginning of March. This is welcome and illustrates the improvement in interbank money markets. Nonetheless, future developments need monitoring given the renewed tensions between the US and China. For now it seems that money market functioning is very close to normal levels.

    Economic impact

    • Evidence is mounting that economic conditions, while far from good, are starting to improve. We continue to see early signs of turnaround in daily and weekly indicators
    • Overall, levels of activity have bottomed, i.e. are not worsening, and economic momentum has picked up
      • People in all countries are leaving home more frequently, with Apple and Google Maps data suggesting that mobility activity is around 75% of usual levels, up from 50% a month ago
      • In Asia, urban activities grew substantially, especially metro passengers in Beijing and Shanghai, both of which normalized to 80% of the 3Y average, indicating a return to offices
      • Demand for gasoline is rising as economies reopen, given the lack of interest for public transport
      • In the US, motor gasoline demand bottomed out and recovered about one-third of its decline since mid-March. Passenger screenings in US airports are also rising at about double the 14 April low, but still 93% off its year-ago level
      • Although initial jobless claims were still as high as 2,981,000 in the week ending 9 May, the relatively modest increase in continuing claims in the week before, suggests the number of people returning to work was nearly as high as the number of people losing a job. In other words, the number of people returning to their jobs almost offset new job losses, which indicates that unemployment might be close to peaking
    Evidence is mounting that economic conditions, while far from good, are starting to improve.
    • In Europe, wage subsidy programmes have been effective at preventing more damage to employment as shown by last week’s employment report. Around 25% of the eurozone’s workforce is now on one of these schemes. In Germany an estimated 10 milion workers are covered, compared with just 1.5 million in early 2009
    • We know Europe’s experience with these programmes has been different from the US, but the US has been generous in expanding unemployment insurance benefits and the introduction of its Paycheck Protection Program (PPP). Americans on unemployment insurance are almost all on “temporary layoff”, meaning that they expect to get their job back within six months
    • On the other hand, measures of discretionary consumer spending will struggle to pick up. Store sales in the US, Europe and Asia show only a slight improvement from previous weeks. Air passenger numbers have nearly doubled but remain less than 10% of last year’s levels. Movie theatre sales are close to zero while in-person diner numbers are running below 5% of usual levels. Demand in these sectors is unlikely to recover fully until fear of the virus dissipates further
    • This appears consistent with our view that consumption will only recover gradually while construction and manufacturing activity will improve faster. This is the case with Asia and China where industrial production has recovered but retail spending is slower, and so building inventory. Many economies will look similar as shown by last week’s weak retail sales report in the US
    • This highlights the uneven nature of the recovery and that, even after an initial improvements, the economy will operate below pre-virus output levels for some time and until at least late 2021
    • The question of how quickly demand recovers also holds the key to the path of inflation. Right now, the weakness of aggregate demand means the virus is disinflationary.
    This appears consistent with our view that consumption will only recover gradually while construction and manufacturing activity will improve faster.

    Portfolio positioning

    • 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 growth in IT and health care, which dominate US stock indices, and we favour US equities over European stock markets. We have also increased exposure to investment-grade credit.

    New infections as at 17.05.2020


    Sources: Bloomberg, IMF, Lombard Odier calculations

    COVID-19 Dashboard – Emerging market focus

    Public health

    • The pace of new infections is declining in our sample of emerging countries in the dashboard. A simple average of the daily growth in confirmed cases stands at 3.8%, down from 4.2%, 4.7%, 5.1%, and 6.6% in the preceding four weeks
    • The two countries reporting the biggest increases in confirmed cases are Russia (272,000 vs. 199,000 last week) and Brazil (234,000 vs. 156,000 last week). The virus curve appears to be peaking in Turkey where confirmed cases are 148,000 vs. 137,000 last week
    • Adjusted for population size, the pace of new infections is highest for Chile followed by Russia and Brazil
    • However, both Russia and Turkey have far higher testing levels at 27 and 13 tests per 1,000 people, compared with India, Indonesia and Mexico at fewer than 1 test/1,000. The higher numbers in Russia and Turkey may be a function of a substantially higher testing. Countries with low levels of testing such as India, Indonesia, Mexico, and Brazil and – to a lesser extent – Colombia and South Africa, may see their numbers increase.
    The pace of new infections is declining in our sample of emerging countries in the dashboard.

    LATAM lockdown news

    • Mexico will lift a quarantine for 10% of municipalities where there are no confirmed virus cases starting 18 May, and will begin to reopen the rest of the country on 1 June. Mexico City, one of the epicentres, will remain at the highest level of lockdown
    • In Brazil, the response to the virus has been chaotic. Protests continue with President Jair Bolsonaro’s supporters opposed to social isolation rules. This past week, the President classified gyms and beauty salons as essential businesses, at odds with health ministry recommendations. The health minister resigned last week, a few weeks after his predecessor was fired after clashing with Mr Bolsonaro. Justice Minister Sergio Moro, one of the most popular and powerful figures of the far-right administration, has also resigned, after the President sacked the head of Brazil’s federal police. Mr Moro’s exit may weaken his support and increase impeachment risks
    • On the other hand, Colombia has one of the strictest containment measures in LatAm, and the country remains in lockdown until 25 May
    • Chile has used selective rather than nationwide lockdowns. The capital city Santiago went into lockdown 15 May following a rapid rise in cases.

    ASIA lockdown news

    • Thailand loosened lockdown rules by allowing shopping malls to reopen. Thailand remains under a state of emergency through May but began easing its lockdown at the start of the month by lifting an alcohol ban and re-opening restaurants
    • In Malaysia schools remain shut and religious and sports gatherings banned. Malaysians can’t freely travel over the Eid-al Fitr holiday
    • India’s nationwide lockdown is extended until 31 May
    • Indonesia is set to ease social distancing rules in some areas. Indonesian government officials have begun discussions to begin reopening the economy in five phases starting June, with the economy completely reopened by late July or early August.

    CEEMEA lockdown news

    • In Turkey, the number of provinces locked-down on weekends and national holidays has halved. Other restrictions have eased, including the opening of malls and hairdressers
    • Russian President Vladimir Putin announced the end of a six-week national stay-at-home order last week, making regional governors responsible for relaxing local lockdowns
    • South Africa remains under lockdown though restrictions were eased from 1 May. South Africa is considering easing lockdown rules in some areas with low infection rates, and kept in hotspots such as Cape Town.

    Emerging Markets: new infections, total infections, total deaths, fiscal stimulus and monetary 
    policy as at 17.05.2020


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

    Monetary and fiscal measures

    • China’s National People’s Congress will be held on 22 May where the fiscal policy support for the economy will be raised. There will be some focus on the growth target, which last year was 6.0 -6.5%
    • The Bank of Thailand is poised to cut rates by 50 basis points to 0.25%, while Bank Indonesia will probably keep rates at 4.5%
    • Last week, the Indian government announced a total fiscal package of USD265 billion or 10% of GDP. About half of this includes measures already announced. The measures focus on credit guarantees and interest subsidies, coupled with proposed tax breaks for new plants and incentives for overseas companies to invest
    • In LatAm last week, Mexico’s central bank cut the monetary policy interest rate by 50 basis points to 5.5%, as widely expected
    • The minutes for the Brazil central bank meeting – at which the central bank cut interest rates by 75bp to 3.0%, suggested that there is a “lower bound” for rates, though it may be lower than current levels
    • Chile’s central bank asked the International Monetary Fund for a flexible credit line to shield its financial system. While the country has low debt levels, its foreign exchange reserves remain relatively low, at USD36.9 billion, covering six months of imports
    • In CEEMEA, the central banks in Turkey and South Africa meet this week. The Turkish central bank is expected to cut rates by 75bps to 8.0%, with South African central bank will likely cut by 25bps to 4%.
    China’s National People’s Congress will be held on 22 May where the fiscal policy support for the economy will be raised. There will be some focus on the growth target, which last year was 6.0 -6.5%.

    Economic impact

    • Q1 GDP releases are due in many countries this week, including Thailand, Chile and Peru and Russia. Data released last week showed Colombia GDP growing 1.1% year-on-year in Q1, below expectations, for a 1.5% reading.

    Emerging markets focused: new infections as at 17.05.2020


    Sources: Bloomberg, WHO, IMF, Lombard Odier calculations

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