COVID-19: Dashboard

New infections, total infections, total deaths, fiscal stimulus and monetary policy as at 29.04.2020

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

Public health

• The growth of the virus continues to slow to very low levels across the globe

• Italy, Spain, Belgium, Switzerland and Germany saw the lowest number of new cases and deaths in nearly seven weeks

• However, the key question now is how the virus spread will look like as lockdowns are eased. For now, signals from Asia are encouraging. The second wave is being contained allowing the economies to reopen and the recovery to unfold without significant revival of movement restrictions. China reported just four new symptomatic cases and 33 new asymptomatic cases. All of the symptomatic cases were imported. Meanwhile, South Korea reported four new cases, all imported and said that the parliamentary election polling has not produced any confirmed case in the subsequent 14-day period. Neither Hong Kong nor Taiwan have seen a new case for five straight days through 29 April

• Epidemic curves in Singapore and Japan have peaked with daily new cases trending clearly downward since mid-April. Singapore has extended its “circuit breaker” measures to 1 June and Japan is discussing the possibility of extending its emergency declaration beyond 6 May
   
• A positive development is the significant scaling up of testing efforts in many OECD countries. Spain, Italy and Switzerland are among top 10 testing countries, relative to population. Increased testing capacity is crucial for de-confinement strategies and to reduce risks of new outbreaks
   
• More antibody studies are helping public health authorities gauge the true level of infections. Preliminary results for New York, California, Denmark, Germany and Scotland suggest that the severity of the disease may not be as bad as case fatality rates in the US and Europe. However, there seem to be significant number of missed Covid-19 related deaths, so this debate will continue. Long-term re-opening strategies may be calibrated to reflect these new survey results (i.e. age-based restrictions)

• There is also a potential treatment breakthrough. Gilead Sciences said that a trial comparing its remdesivir drug over 10 days against a placebo improved patient recoveries. In addition, Gilead said that its severe Covid-19 trial shows that a 5-day treatment has shown similar efficacy. This implies that it is possible to treat twice as many patients. Gilead will release data for moderate Covid-19 patients by the end of May. More data are needed, but this looks promising
   
• While it is clearly too soon to switch to a base case including a drug treatment, this would allow a reopening of economies, considerably strengthening and accelerating the recovery process. There will be significant volumes of data from the ongoing clinical trials of repurposed drugs between mid-May and June. Furthermore, countries are accelerating research on therapeutic and prophylactic uses of antibodies based on plasma donated from previously infected patients. Results of these studies should be available in the coming months

• In France, Prime Minister Edouard Philippe announced a plan to begin reopening shops from 11 May, while schools will also reopen gradually from the same date with strict rules. Large gatherings of more than 5,000 people will be prohibited until September. The country will increase testing to 700,000 per week
   
• In Spain, Prime Minister Pedro Sánchez plans to reopen over four phases, each lasting approximately two weeks. Schools will not reopen before September but, starting 2 May, people exercise outdoors (children have been allowed out for an hour a day since 26 April). Small businesses and hotels should progressively reopen on 11 May while ensuring social distancing
   
• Italy: Prime Minister Giuseppe Conte outlined the second phase of opening. Italians will be allowed to travel within their region only, while social distancing. Manufacturing and construction will resume on 4 May and services such as restaurants or hairdressers should reopen on 1 June. Schools will also not reopen before September.

Monetary and fiscal measures

• Fiscal response is another key element for the economic outlook during this extraordinary economic period. Measures announced in advanced economies already exceed in size those taken during the 2008-09 period – illustrating both the speed and the scale of the policy response. That said, some measures are more effective than others: for instance, a direct fiscal transfer replacing lost income is likely to have a bigger effect than a state guarantee on a loan that will still need to be repaid one day. The size and the mix of fiscal measures differs between countries

• The US, with discretionary fiscal measures of USD2.5 trillion (over 12% of GDP) have taken the most decisive approach on this front. In Europe, countries with limited fiscal space such as Italy and Spain, have been much more timid in their spending decisions, even though they have been hit hard by Covid-19. Meanwhile the centralized response at an EU level remains limited – as it remains to be seen whether (and how quickly) the Recovery Fund takes shape
   
• Federal Reserve Chairman Jerome Powell has signalled that interest rates will remain low and credit will flow freely
   
• We continue to see the highest levels of fiscal and monetary coordination of our lifetimes. “This is the time to use the great fiscal power of the United States to do what we can to support the economy,” Mr Powell said at a press conference
   
• On policy support, the US Federal Reserve announced an expansion of the scope and duration of the Municipal Liquidity Facility (MLF)
   
• It will purchase up to USD500 billion of short-term notes issued by US states, counties with a population of at least 500,000 and cities with at least 250,000 residents
   
• Notes must mature no later than 36 months from the date of issuance – an increase from the previously announced 24-month maximum
   
• Eligible issuers must have had an investment grade rating as of 8 April, from at least two major nationally recognized statistical rating organizations

• In the euro area, the Bank Lending Survey (BLS) strengthens the case for the European Central Bank to rely on credit easing measures to support the real economy via the banking sector. Firms’ demands for new loans and emergency credit lines surged in Q1. In this respect, targeted longer-term refinancing operations (TLTRO) provide a crucial liquidity safety net, They create the right incentives for banks to maintain lending to the real economy, and help mitigate the side-effects of negative policy rates. If the ECB wanted to send a strong signal, they could lower the minimum TLTRO rate, from -0.75% to -1%, while signalling that they could cut it even further. Overall, loan guarantees and the ECB’s cheap loans to banks are having some positive effects, which should help the economy to recover as lockdown measures are lifted
   
• China plans to accelerate infrastructure construction, especially information networks, upgrade industrial facilities and consumption
   
• The LIBOR-OIS spread continues to narrow and is now around 25 basis points. By that measure we are very close to levels that reflect a normally functioning interbank market.

Economic impact

• US Q1 Gross Domestic Product sank 8% at an annual rate, led by a collapse in consumer spending. The 7.6% annualized plunge in private consumption expenditures was the deepest since the 1980 recession as a sharp decline in discretionary consumption was partially offset by staples hoarding
   
• The euro area’s Q1 GDP reading is scheduled today, giving some clues as to the extent to which the initial lockdown measures affected output
   
• The steep drop in Q1 GDP demonstrates that social distancing and strict economic lockdowns had the intended result with hospitalizations now falling
   
• We will probably see default rates between 5% and 10% in Europe and the US and unemployment rates between 10% and 15%. These numbers are actually lower then where they could be relative to the scale of the economic destruction due to the lockdowns, reflecting incredible interventions by central banks and fiscal authorities around the globe

• Reopening in Germany is immediately reflected by the congestion index, air quality index and flight numbers, all of which experienced double-digit growth on a 7-day rolling basis
   
• Growing flight numbers and congestion suggest that more people in China are traveling domestically. The national holidays starting tomorrow, 1 May, will be a good chance to monitor people’s confidence in public health
   
• Travel-related indices also showed significant increases in the US, suggesting that people are paying less attention to social distancing, which may be troublesome for pandemic control
   
• It is widely agreed that travel and tourism are suffering from the coronavirus pandemic as consumers continue social distancing, even after the peak of the crisis. This hurts Europe more than the US, where travel and tourism is a relatively small share of employment. Data from the World Bank shows travel and tourism share of employment and that sector is twice as important for Germany than it is for the US, for example.

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 29.04.2020

Earnings season 

In a context of reduced visibility due to social distancing and global lockdowns, investors should have very low expectations on the read across from the Q1 earnings season. Still, investors need to assess the impact of the pandemic on corporate earnings and the shape of the recovery to understand trading levels in equity markets, as well as what they would be willing to pay going forward.

Click here to read more on earnings, global economic activity and our sector takeways. 

Le présent document de marketing a été préparé par Banque Lombard Odier & Cie SA (ci-après « Lombard Odier »).
Il n’est pas destiné à être distribué, publié ou utilisé dans une juridiction où une telle distribution, publication ou utilisation serait interdite, et ne s’adresse pas aux personnes ou entités auxquelles il serait illégal d’adresser un tel document de marketing.

En savoir plus.