COVID-19: Dashboard

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

Public health

• Signs of a flattening Covid-19 curve and partial easing of lockdowns offer hope for the main economic blocs, despite cases topping 2.5 million globally and deaths now close to 200,000

• China’s epidemic curve remains stable, with the National Health Commission reporting 10 symptomatic cases (of which six were imported) and 27 asymptomatic cases (of which one was imported)

• Japan’s case numbers seem to have stabilized in past few days and the country is entering a crucial period testing the effectiveness of the government’s Special Measures Law for infectious diseases. The Japanese government can only request individuals to comply with the social-distancing recommendations. However, the nationwide emergency declaration through 5 May is curbing movements, according to real time traffic data

• Recent spikes in Singapore’s epidemic curve provides a more cautionary example for the normalization of economic activities, but the spike is mainly driven by a large cluster of migrant workers in crowded dormitories, and most of the new community transmissions have been traced. The country maintains very low fatality rates and the health system remains stable. Given the lockdown since early April and aggressive testing, we expect that the epidemic curve to start stabilizing

• Fears about importing cases from Russia led China’s authorities to lock down Suifenhe, a border town in the northeast. The lockdown has now been extended to Harbin, a near-by capital city of Heilongjiang province. The number of new cases in Heilongjiang fell to four on 22 April. We expect this aggressive cluster management to keep the situation under control

• Epidemic curves in South Korea, Taiwan, and Hong Kong, the three exemplars of test-and-trace management of Covid-19, remain very stable. South Korea’s epidemic curve has not meaningfully changed, despite a high-turnout national election held on 15 April

• In Europe, Italy reported earlier this week the fewest new cases in over a month with a daily increase now below 2%. Spain’s trend appears similar, with both growth rates for daily new cases and deaths stable at around 2%, and a progressive lifting of the lockdown planned for the second half of May. New cases in both Germany and Switzerland rose by 1% or less recently. UK hospitals recorded 449 coronavirus deaths on 20 April, the lowest daily increase since 6 April, while new infections growth rate remains above 3%

• In the US, new deaths attributed to the pandemic emerged in California, meaning the virus has been in the country since early February. Daily new infections hit 3.4%. Treasury Secretary Steven Mnuchin suggested the economy could reopen progressively by the end of August

• In a new report, the UN World Food Programme (WFP) projects that Covid-19 may add another 130 million people to the existing 135 million people already classed last year as acutely food-insecure

• For economies to re-open, we see three conditions that need to be met: 1/ Health systems across the country need the capacity to deal with a rise in new infections; 2/ The rate of infections, hospitalizations and deaths must be in decline; 3/ Testing capacity needs to be adequate to quickly isolate potential carriers. Some major economies are starting to meet these conditions.

Monetary and fiscal measures

• Proposals for a major, joint fiscal initiative are under discussion ahead of a European Union leaders' meeting. While divisions will be challenging to overcome, we have seen some breakthrough on the European Stability Mechanism. A full common fiscal framework, through a Eurobond safe asset, is probably too ambitious at this stage. As a result, the ECB will have to continue to expand its role and continue to purchase large amounts of government bonds

• The European Central Bank's PEPP (Pandemic Emergency Purchase Programme) is being front-loaded with purchases running at an average EUR5.6 billion per day, or EUR118 bn per month. At the current pace, the EUR750 bn would be exhausted by mid-October. Purchases should slow to EUR4 bn per day, or EUR83 bn per month to make the programme last until December 2020

• Demand for the ECB's weekly bridge LTROs (Long Term Refinancing Operations) is rising again, to EUR19 bn this week and EUR276 bn total. Total LTRO outstanding liquidity is now up to EUR910 bn ahead of the June operation, when the one trillion mark may be exceeded

• In the US, increasing the PPP (Paycheck Protection Program) budget is a high priority. The Senate passed a USD484 billion deal that will restock an exhausted small business programme providing more funds for virus testing and hospitals. The House is set to vote on the measure today. It includes USD380 billion meant to help small businesses keep workers employed. Treasury Secretary Mnuchin said it would be the last tranche, although the White House could "recalibrate" if needed. Most of the bill’s provisions support small businesses (USD380 bn), with USD75 bn for hospitals and USD25 bn for disease testing

• The LIBOR-OIS spread has continued to normalize lower, albeit slowly and at elevated levels. At 40 basis points it is materially lower than the peak of 79bps in mid-March but still around 25bps higher than ‘normal’ levels. Improvements continue but money markets remain cautious, pricing in high interbank credit risk premia.

Economic impact

• Clearly, although the good news means the focus is shifting to the reopening process, there will be more difficulties, and some sectors/regions will recover faster than others

• Based on Asia’s experience and China’s in particular, we expect the manufacturing sector in Europe and the US to revive faster than services

• Factories will more easily implement social distancing and so should open sooner and recover faster

• Many service industries, from airlines to cinemas or restaurants, have seen revenues drop to zero. For these sectors, any level of renewed activity is an improvement. As more sectors resume and health systems gain experience in dealing with the coronavirus, it seems reasonable to expect growth to continue improving

• One additional complication in the US is the recent collapse in oil prices. This suggests that investments in US mining structures and equipment will dry up in coming quarters, and may remove as much as 0.6 percentage points from US annualized GDP growth

• As we have often said, the fiscal and monetary responses to the pandemic have been unprecedented and along with the appropriate public health responses in the reopening phases, mean that the risk of prolonged economic depressions remains low

• Compared with the normalised economic activity dashboard published on 20 April, no change in country assessment but in general better week-on-week trends, except in South Korea and the United Kingdom. While other European countries still trended down, Germany showed a strong upward momentum, mainly driven by more congested roads and increased imports

• After two weeks’ weak performance, China’s exports rebounded with more containers leaving ports. Meanwhile, domestic flights and the congestion index continued to grow

• The US remained unchanged on almost all indicators, apart from the slightly increased congestion index.

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.

Normalised Economic Activity Dashboard

Imports and exports as at 19.04.2020, electricity, air quality and congestion as at 21.04.2020

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

* 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.

Public health

• Last week, seven of the 12 countries in our Emerging Market dashboard showed daily-confirmed case growth rates of over 10%. That number has fallen to only two countries, Brazil and Russia

• Turkey remains among the worst affected, though there is some improvement. The rate of new infections is slowing. Confirmed cases are growing at a daily rate of 5.9% compared with 10.9% last week. However, the country still has the highest rate of new cases at 46 per million population, as well as the highest death rate at 23 deaths per million

• The number of cases continues to grow in Russia where the rate of 15% remains unchanged since last week. Russia shows the second-highest number of new cases at 41 per million though number of deaths are far lower at 2 per million

• Elsewhere, after showing slower growth in cases, the number of confirmed cases in South Africa is accelerating: daily cases grew 7% compared with 3% last week. Poland on the other hand continues to show improvements, with the growth rate in confirmed cases further decelerating to 5%, compared with 7% last week

• In Asia, India and Indonesia showed a decline in the growth rate of confirmed cases, but at relatively elevated levels of 7% to 8%. Thailand continued to show a low growth rate of new cases at 1%, while Malaysia also showed a significant reduction, growing 1.5% compared with 3.2% last week

• In LATAM, Chile continued to show the highest total with 509 confirmed cases per million. However, the daily growth in confirmed cases has slowed to 6% from 8% last week. Brazil on the other hand has a proportionately lower number of confirmed cases at 160 per million, but the growth in daily cases remains high at 10%, and has re-accelerated over the past week

• Both Colombia and Mexico continue to show the lowest number of total cases at less than 70 per million. However, Colombia’s infection rate has slowed considerably to 5% compared with 12% last week, while Mexico still remains high at 8.4% versus 11.4% last week.

Monetary and fiscal measures

• In the week ahead, central banks in Turkey and Russia hold scheduled meetings. The consensus is for Turkey to cut between 25 – 100 basis points and Russia to ease between 25-50 bps.

• Following an unscheduled meeting, Colombia’s central bank announced new measures to increase liquidity by cutting reserve requirements. Its board authorized the purchase of up to 2 trillion pesos of government domestic public debt (TES) bonds in the secondary market through the rest of April.

• Brazil’s Senate passed a first round vote on a ‘war budget’ to facilitate coronavirus-related spending by the federal government and lets the central bank buy corporate bonds. The bill needs a second approval.

 
Economic impact

• Last week, Fitch rating agency downgraded Mexico’s sovereign rating one notch to BBB- with a stable outlook.

Sources: Bloomberg, IMF, Lombard Odier calculations

Exports, Imports, Electricity, Air Quality as at 18.04.2020 / Congestion as at 12.04.2020

We try to understand the economic activities through three channels:

• Trade activities (Exports & Trade), Production activities (Electricity demand & Air quality), City activities (City congestion & Flights).
• Countries are coloured based on their mean normalized indicator: Green > 85%, 85% ≥ Yellow > 60%, 60% ≥ Red

* Exports statistics based on the 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: it is the net interest (in bps) received by a party which lends EUR to borrow USD. When too many participants require to borrow USD, the USD cost increases resulting in a USD funding squeeze and triggers a significant widening (negative) to 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 while OIS is virtually risk free. A widening of the spread suggests an increase in the risk premium.
   
• Normal range: this is calculated on a 3Y rolling basis. Namely, 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.

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