Morning Commentary: All for One, One for All

Foreign Exchange - Morning Commentary
All for One, One for All
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
US initial jobless claims doubled to a record high of 6.65 million.  Additionally, last week’s number was also revised up slightly.  For context, initial jobless claims have been running in the low 200k through all of 2019.  Today’s massive number continues a trend of economic data points illustrating the economic costs of the COVID-19 crisis.  

Through all of this, the US’s policy response has been an evolving one due to misconceptions around the virus.  Some of the key misconceptions include 1) only hotspots in the country need to do social distancing and 2) closing international borders will keep the virus from spreading in the US.

The issue is that data clearly shows that closing international borders has not stopped the virus from going global.  Given this, closing internal borders is likely to be even less effective.  As such, walling off hotspots like New York will not be a successful strategy.  

Italy and China have found success by implementing aggressive social distancing measures across the entire country.  In contrast, the US has been running a piecemeal approach with social distancing measures implemented after the virus has established itself in the community.  Clearly, this has not been working as new hot spots are developing around the country.  

All of this reinforces the notion that aggressive social distancing is the best way to minimize the spread of the virus and minimize the long term economic impact.  Even after states bring the virus under control, they will still need to maintain strict distancing rules as the virus doesn’t move on a one-way street.  Case in point, a county in China has been put back under lockdown after a flare up in cases. 

As such, expect the US economy to successively weaken through the next couple of months as stricter distancing measures are rolled out. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • While today’s initial jobless claims number doubled last week’s record, many Americans are struggling to file claims due to jammed phone lines and overwhelmed websites, implying that the true number is even larger than reported.  The next key data release will be tomorrow’s non-farm payroll report that is expected to show the first monthly decline since 2010.  
  • The Federal Reserve Board has temporarily excluded Treasuries and deposits from its leverage ratio rules to ease strains in the Treasury markets and increase banks’ abilities to provide credit to businesses and consumers.  This move builds on other “whatever it takes” measures from the central bank.  
  • The number of confirmed cases worldwide is expected to top 1 million this week although a lack of testing kits likely means the number of cases is actually much higher.  On a country level, the death and new cases curve continues to flatten in Italy and Spain.  Domestically, the US has roughly double the number of confirmed cases as any other country and projections show another 2 weeks before the US reaches an apex.   
  • Oil price are on the rise this morning.  Some of the key drivers include conciliatory comments from Putin that could bring Russia back to the negotiating table and reports that China will be making purchases to refill its reserves.  
  • The EU has broken into two camps on how to respond to the virus.  It is this failure to find consensus on a strong fiscal response that puts the EZ economy at risk relative to other areas that have taken decisive actions.  
  • Canada’s Finance Minister unveiled details to the country’s wage subsidy plan.  Including this plan, the total cost for all direct support to businesses and individuals will total ~C$170 billion or ~4.6% of GDP.   
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