COVID-19: Dashboard

New infections, total infections, total deaths, fiscal stimulus and monetary policy as at 26.04.2020

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

Public health

• Infection cases now top 3 million globally and deaths have passed the 200,000 mark, but growth rates continue to slow
   
• After weeks of confinement measures, from national lockdowns to social distancing, most European countries are set to progressively reopen economies and allow populations to move, as the latest figures suggest the spread is now being contained. Those positive trends globally may indicate that the first phase of the crisis is now past
   
• On 23 April, Italy saw recoveries from Covid-19 overtake new infections for the first time and this trend seems to persist. On 26 April, Spain reported its lowest daily death count since its peak on 2 April. Both Italian and Spanish Prime Ministers have expressed their intention to further relax the current measures and intend to respectively authorise limited movement of people starting on 4 May and outdoor exercise starting 2 May. Importantly, while manufacturing and industries are reopening, they will need to guarantee social distancing and protective measures
   
• In France, new cases and fatalities are both trending lower, and a plan to unwind the lockdown is expected on 28 April, with schools most likely first to re-open. In Germany, new daily cases remained below the 2,000 mark over the weekend
   
• On 27 April, Switzerland enters the first of its three lockdown-loosening phases, allowing hairdressers, garden centres and hardware stores to reopen. The Federal Council is scheduled to set out the next steps on 11 May
   
• In the UK, after recovering from the virus, Boris Johson is returning to office on 27 April and is expected to address mounting political pressure to reopen the economy
   
• Japan and Singapore, countries receiving significant attention due to the recent spikes in infections, epidemic curves are further stabilizing. We expect this trend to continue as aggressive case counting and tighter social distancing bear fruit
   
• Epidemic curves remain stable in China, Taiwan, Hong Kong and South Korea as activity normalizing
   
• Cases in the US rose on 24 April at the slowest pace in three weeks. The country remains the most severely hit by the pandemic with more than 50,000 deaths and New York starts antibody testing for front-line medical staff. Even as many US states end their economic lockdowns, nearly all are keeping schools shut for the remainder of the school year. In contrast, France, Denmark, the Netherlands and Germany are all re-opening schools
   
• While the contagion trends point to some optimism and seem appropriate to initiate a reopening process and an uneven recovery, the biggest concern remains the risk of a second wave of infections. “There is currently no evidence that people who have recovered from Covid-19 and have antibodies are protected from a second infection,” the World Health Organisation said on 24 April.

Monetary and fiscal measures

• In addition to unprecedented policies so far, further adjustments can be expected as there is a clear sentiment that Europe is not doing enough for its southern countries, the International Monetary Fund is not doing enough for emerging markets and the US Congress is not doing enough for the federal states
   
• As expected, there was no European breakthrough beyond endorsing the Eurogroup’s EUR540 billion package, operational by 1 June 2020 (European Safety Mechanism, the Support to mitigate Unemployment Risks in an Emergency package, known as SURE and European Investment Bank. The European Commission was asked to work on Recovery Fund details. There seems to be have been some progress as European Commission President Ursula Von der Leyen mentioned EUR1 trillion of investments to be mobilised in grants and loans. There is still hope for a more ambitious deal but the process is laborious
   
• Much depends on the European Central Bank. Some new policy was introduced as the ECB will now accept some junk-rated debt as collateral for loans to banks. That aims to shield the euro area’s most vulnerable economies as they face the risk of credit downgrades. The bonds must be rated as investment grade on 7 April, and the clause is temporary until September 2021
   
• Overall, monetary and fiscal policy responses from Europe have been smaller compared with the US and the ECB remains the ultimate European back-stop.
   
• The Bank of Japan decided on 27 April to (1) maintain the policy rate at -0.1% and (2) increase purchases of commercial paper and corporate bonds with the upper limit of the amount outstanding at about JPY 20 trillion; (3) strengthen the Special Funds-Supplying Operations to facilitate financing in view of Covid-19; and (4) increase government securities purchases without an upper limit (unlimited QE)
   
• We saw further improvements with the LIBOR-OIS spread at about 33 basis points, compared with a mid-March peak of 79bps. We are still not back to normal levels but the trend is downward. Unless we see another pandemic-related shock, the coming weeks should see further trend towards pre-crisis levels.

Economic impact

• In terms of macro dynamics, global Purchasing Manager Indices tell the same story: services are under much more pressure than manufacturing, which is largely deflationary as the demand side shock is much deeper than the supply side shock, all this in a context of low money velocity. Unsurprisingly, nations with more aggressive lockdown strategies suffered bigger PMI declines
   
• China’s quick economic rebound from Covid-19 is corroborated by a broad array of data. The import curve remained flat in the past week, at 98% of the 3-year average. China’s exports returned to normal levels and increased in the past week
   
• Most of China’s transport-related indicators maintained upward momentum, except for migration, which showed a modest decrease. Wuhan’s metro passenger numbers grew week- on-week by 22%
   
• Contrary to the US or Europe in lieu of a large stimulus package, China has targeted support, such as asking banks to extend loans and telling landlords to reduce rents. The People’s Bank of China has loosened policy, including injecting liquidity and cuts in its one-year loan prime rate and bank reserve requirements
   
• All of these stimulus efforts combine to about 2-3% of China’s Gross Domestic Product. While significant, this is noticeably less than other parts of the world
   
• On our economic activity dashboard, China is assessed as ‘yellow’ as its normalised indicator slid slightly below 85%
   
• In the US, the unemployment rate may surge to more than 15%. However, unlike in a normal economic cycle, the high proportion of people temporarily laid-off may mean that rate will come down relatively quickly if the reopening process is successful. Nearly all of March’s increase in unemployment was due to temporary layoffs
   
• Compared with the normalised economic activity dashboard published on 23 April, all European countries trended up, mainly driven by more congested roads
   
• Imports to Japan increased and to South Korea fell.

Portfolio positioning

• The trend has turned more positive, but we do not believe that all the conditions for a sustained equity market rally are in place yet. We continue to monitor the slowdown in European and US infection rates and the likelihood of a second wave of infections in Asia. Market attention will gradually shift away from the outbreak and towards exit strategies and the economic impact. There are both negative and positive catalysts ahead: positive Covid-19 developments may be mitigated by worrisome news flow including weak economic data, dividend cuts and credit rating downgrades.
   
• In recent weeks, we have enhanced the liquidity profile of our portfolios and strengthened portfolio shields, whilst keeping a slight underweight in equities. Our cautious positioning also reflects the risk of low oil prices.

New infections as at 26.04.2020

New infections, total infections, total deaths, fiscal stimulus and monetary policy as at 26.04.2020

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

Public health

• The pace of growth in new infections is declining in emerging countries in the dashboard. A simple average of the daily growth in confirmed cases now stands at 5.1%, compared with 6.6% one week earlier and 9.3% two-weeks prior
   
• The daily infection rate is now lower for most of the 12 sample countries, with the exception of Colombia and Mexico where infection rates have risen
   
• Turkey still shows the highest infections: both total cases and total deaths per million persons remain the highest in our sample. However, in terms of new infections per million, Turkey is now second-worst with Russia reporting the highest rate of new infections per capita. The pace of growth in confirmed cases has fallen to 8.7%, compared with 16.5% last week
   
• India, Indonesia, Malaysia and South Africa show the lowest infection rates in our sample of countries: new infections per million are between 1 and 2, much lower than the 30 to 40 seen for Turkey, Russia and Chile in our sample
   
• Indonesia extended stringent social distancing rules in the capital of Jakarta, due to end on 30 April, through 22 May. Indonesian authorities have now placed several cities and towns under partial lockdowns to contain the virus.

Monetary and fiscal measures

• In an unscheduled move on 21 April, Banxico, Mexico’s central bank, cut interest rates by 50bps to 6.0% and today announced measures to enhance its ability to provide market liquidity and ease credit conditions
   
• In a scheduled meeting, Turkey’s central bank cut interest rates by 100bp to 8.75%, more than the median 50bp forecast cut, taking cumulative easing to 1,525bp over since mid-2019. It expects disinflationary forces to dominate and price growth could end the year below its forecast of 8.2%
   
• Russia cut interest rates by 50bps to 5.50%, in line with expectations. This brings total cuts to 75bps year-to-date. The central bank said a further 100bps easing is possible and forecast a GDP contraction of between 4 and 6% for 2020.
   
• South Africa unveiled a fiscal package on 21 April including 200 billion rand (USD10.6 billion) loan-guarantee program, tax-relief measures and ZAR130 bn diverted from existing budgets. The country will rely on ZAR95 bn from the International Monetary Fund, World Bank and New Development Bank to help finance the total fiscal package that is worth some ZAR500 bn.

 
Economic impact

• Consensus expectations for emerging market growth have been slashed. Using a weighted average of growth for the BRIICS (Brazil, Russia, India, Indonesia and South Africa) ex-China, growth was 3.50% at end 2019, but using the IMF’s latest forecasts, is expected to contract 2% in 2020 before expanding 5.5% in 2021
   
• However, unlike the last two stress periods for emerging markets – 2013 and 2015- inflation is now half of those levels and within the inflation targets for most, allowing more leeway for central banks to ease monetary policy.

New infections as at 19.04.2020

Sources: Bloomberg, WHO, IMF, Lombard Odier calculations

Normalised Economic Activity Dashboard

We use three channels to assess the economic activity:

• Trade (exports & trade), Production (electricity demand & air quality), and Urban activities (city congestion & flights)
   
• Countries are coloured-coded according to their mean normalised indicator: Green > 85%, 85% ≥ Yellow > 60%, 60% ≥ Red
   
• Arrows represent the WoW trend  
   

* Exports statistics based on shipping data are subject to revision for the past week. Adjustments are expected
** Data will be updated once it is available
Sources: Bloomberg, Baidu, MariTrace, AirSavvi, FlightRadar24, TAS, TomTom, Weibo, AQICN, Lombard Odier calculations

• EURUSD swap basis is the net interest (in bps) received by a party who lends EUR to borrow USD. When too many participants need to borrow USD, the USD cost increases, resulting in a USD funding squeeze and triggering a significant widening (negative) of the EURUSD swap basis.
   
• Libor-OIS spread: Libor is the rate at which major banks lend to each other for unsecured debt. The OIS is a rate very closely linked to the Fed rate.
  In that respect, Libor incorporates a risk premium, whereas OIS is virtually risk-free. A widening of the spread suggests an increase in the risk premium.
   

• Normal range: This is calculated on a 3-year rolling basis: it is the 3Y rolling average plus/minus 1.5 standard deviation
   

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. During this earnings season, we will summarise the most relevant data in a table, together with a few bullet points. 

Sources: Bloomberg, Lombard Odier calculations

Sources: Bloomberg, Lombard Odier calculations

Oil & Gas

• Major oilfield services and equipment manufacturers are braced for a significant contraction in 2020 activity, cuts in capital expenditure of around 30-40%, as well as operating expenditure, most dividends and some executive pay. We have no visibility for Q2
   
• Equinor is the first oil major so far to reduce its quarterly dividend
   
• This week sees BP, Royal Dutch Shell, Chevron Corporation and Exxon Mobil, among others, release Q1 results. We do not expect weak cash flows to prompt dividend cuts.

Industrials

• The industrial sector routinely fails to offer guidance and beat materially reduced expectations, in this case for a highly uncertain Q2/2020. We expect a generally solid Q1 driven by an acceleration of activity, until the Covid-19 related slowdown
   
• Activity fell 30% globally for late March / April in most industrials. China saw a rebound in March but recorded some signs of slowing in April while rest of the world is restarting
   
• There are pockets of growth in semi-conductors and healthcare. There is some resilience in Northern Europe/Germany, Food & Beverage, digitalization and services related activities. The main areas of weakness are in Latin Europe/UK, oil & gas and transportation.

 
Staples

• Demand is sustained for essential goods but the price/mix is less favourable
   
• Closed retail and out-of-home points of consumption have cut sales at staples companies by as much as 40%
   
• Costs of business continuity and logistics are rising.

Consumer Durables

• With the major exception of China, luxury & apparel stores are closed worldwide
   
• Chinese consumers, who account for one-third of global luxury consumption, are showing strong appetite for luxury after re-opening
   
• Tourism-related sales, which account for around two-thirds of Chinese consumption, are currently moving to Mainland China, but combined consumption is lower than previous levels.

Telecommunication Services

• Covid-19 is already impacting telcos in their Q1 2020 results, with lower enterprise revenues, triggering top line revenue misses
   
• Churn rates have fallen in Q120, helping lower subscriber acquisition costs
   
• Advertising trends are down significantly (-35% YoY) but have less material impact on Q1 as most cuts only took effect mid-March.

Banks

• The largest US banks reported decent pre-provision earnings with some strong metrics (trading volumes, balance sheet growth) though we would expect this to dissipate in part over the coming quarters, especially trading volumes
   
• US banks also appear to be frontloading provisions (strong increase in Q1 20, more to come in Q2 20 and possibly H2 20), but they can afford it with ROTE (return on tangible equity) still in the mid-single digits in Q1 20
   
• Capital ratios were down quarter-on-quarter and may continue to deteriorate in the short term but pre-provision profitability remains good and buffers to requirements are high.

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