Morning Commentary: Coming Soon: Grand Reopening

Foreign Exchange - Morning Commentary
Coming Soon: Grand Reopening  
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Yesterday, President Trump outlined guidelines for reopening the economy.  States will bear the responsibility for reopening each respective economy, but no specific timeframe was given.  News of the reopening plan combined with reports out of the Chicago trial of Gilead Sciences’ drug remdesivir showing promise in treating COVID-19 patients have put the markets firmly in risk on mode. 

While both headlines are positive, it is important to take headlines in context.  Recent news headlines regarding China have indicated things along the lines of “95% of major construction material enterprises” have restarted production or “85% of house and municipal infrastructure projects” have resumed construction.  On the surface, these headlines are positive, but they also mask reality as companies have resumed operations but remain well below normal capacity.  Point being, even with more extreme social controls, China’s economic restart remains slow and uncertain.

Given weaker social interaction controls, expect Western democracies to take even longer to reopen without a reemergence of the disease.  Manufacturing and construction-type industries are likely the first to open.  The more automated the process, the quicker that process can reach full productivity.  The retail sector likely reopens with a similar social distancing dynamic as is currently in place with supermarkets.  Office work likely resumes with some sort of rotation system that still relies on people working from home.  Layering on top of all this will be the density of each individual city.  New York and many large European cities rely on public transportation and have high population density.  These issues present obstacles to normalization.      

These are unprecedented times.  With no historical precedent to draw from, monitoring the developments in Asian and European countries that are ahead of the US on the infection curve provides the best benchmark on what to expect in the US once the country begins normalization.  
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Regarding the US’ plan to reopen the economy, the move will come in 3 phases.  Governors will need to choose between a statewide or a county-by-county approach.  The standards for reopening include a “downward trajectory of documented cases within a 14-day period” or a “downward trajectory of positive tests as a percent of total tests within a 14-day period” to proceed to the next phase. Under the first phase, large venues would reopen with “physical distancing protocols.” The third phase would include the “unrestricted staffing of worksites.”
  • The UK government announced that lockdown measures would be extended by three weeks to at least May 7.
  • China’s economy contracted 6.8% on a year-over-year basis in the first quarter.  This was the first contraction since 1992 when the official releases of quarter GDP first started.  Chinese officials pledged to deliver more stimulus, including more interest rate cuts, on the back of this weak economic print. 
  • Japanese industrial production fell -5.7% on a YoY basis, reflecting the impact of the virus.  Yesterday, Japan expanded its state of emergency to the entire country.
  • The ECB has announced capital relief for trading activities and lowered capital requirements for banks.  This should allow capital constrained banks in Europe to take on additional risk. 
  • Oil price continue to fall, with oil down over 10% in today’s session.  As touched on in past commentaries, the demand shock has been much greater than OPEC’s historic production cut.  To this end, Saudi Arabia and Russia have discussed imposing deeper production cuts. 
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2020 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog