Morning Commentary: Mounting Risks Part 2

Foreign Exchange - Morning Commentary
Mounting Risks Part 2
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
In yesterday’s morning commentary, we discussed how developed markets were doing during their re-opening processes.  Today, we expand that discussion to ASEAN economies.  

Looking at data through the first half of June, we see that the number of confirmed daily COVID-19 cases has moved up by 20% versus the infection rate during the month of May.  Indonesia and the Philippines drove this increase with increases of 37% and 48%, respectively.  Helping to counter this rise has been the decline in cases in Singapore and continued performance in Malaysia, Thailand and Vietnam.  

Despite the overall rise in cases, the situation appears to be mostly under control.  An argument can be made that the rise of cases in Indonesia and the Philippines is being driven by an increase in testing with both countries scaling up testing by ~21%.  This view is supported by the ratio of positive results staying relatively stable and the ASEAN epidemic curve remaining controlled compared to other EM peers.  

In regards to economic activity, Google mobility data shows an increase in movement across the ASEAN region.  The rate of improvement was most pronounced in Singapore and the Philippines. While mobility is improving, the aggregate level still remains substantially below pre-COVID levels.  This likely reflects an overall policy “stringency” level that remains elevated as the ASEAN region continues to reopen at a relatively slower pace than its regional peers.  Expect further mobility data gains in line with the continued re-opening of economies and easing of lockdown measures.  But as with every other part of the world, the increase in mobility likely increases the infection rate.  This makes the next few weeks critical in determining the ability for countries to re-open while keeping the virus under control.  
  • Top US and Chinese officials met in Hawaii and reaffirmed each country’s commitment to honor the Phase 1 trade deal.  On China’s part, it will accelerate purchases of American farm goods to move the country closer to its purchase targets.  Due to virus related shutdowns, China has reached 13% of its 2020 purchase targets through the first 4 months of the year.  
  • EU leaders are meeting today to begin negotiations on a 750 billion euro rescue package.  No final agreement is expected before the next summit in July, but markets will be watching for signs of progress/compromise.  
  • Virus news continues to be mixed with Texas continuing to open despite a spike in cases.  New York is also moving forward with its second phase re-opening beginning Monday.  
  • Canadian retail sales for April came in much worse than expected as it fell -26.4% against expectations for a fall of -15.1%.  The CAD actually finds itself stronger on the session, despite the bad economic data, which illustrates that markets continue to look through the current poor data and focus on hopes of a rebound amid unprecedented stimulus.  
  • The GBP is finding some support as a meeting between UK PM Johnson and French President Macron gave markets hope that a deal could get done when negotiations restart on June 29.  
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