Morning Commentary: The Feedback Loop

Foreign Exchange - Morning Commentary
The Feedback Loop
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The COVID crisis has led to a surge in studies that attempt to understand the feedback loop between the virus, public health policy and the economy.  From this wave of research is a particularly interesting study from the San Francisco Fed.

Modeling how the virus spreads involves estimations across a complex feedback loop.  For example, warmer weather may reduce the transmissibility of COVID, but it may also increase mobility as people want to be out and about.  More mobility may lead to more infections, but more infections may also lead to reverse causality as more infections encourage people to stay home. 

The San Francisco Fed paper tries to untangle all of this by using county data to understand the relationship among weather, COVID cases, death and mobility.  The research shows that weather has a big impact on mobility.  Unsurprisingly, as weather warms, people want to be outside.  The study also finds that warmer weather does reduce the incidence of the disease with a multi-week lag.  This is an interesting finding as there remains a lot of disagreement among experts on this point.  Finally, the third and core finding of the study is that time away from home has a large, positive statistically significant impact on COVID cases and deaths. 

Digging deeper into the last finding shows that different types of mobility have bigger impacts than others.  The effects are strongest for “time spent at workplaces, at retail and recreation and at parks.”  The effects are small and statistically insignificant for “time spent at transit stations and at grocery stores & pharmacies.”  The paper also finds that there are long lags in transmission.  Most studies have assumed a 14 day lag—7 days for incubation and 7 for testing positive. But the paper finds the rise in cases comes 2-8 weeks after a change in mobility data.  Mortality also lags longer at 2-10 weeks.  Taken together, this means infection and mortality data we are currently seeing reflects the old regime.  The impact of new measures could take months before making an impact in reports.   

In essence, this paper builds on and confirms what other studies on non-pharmaceutical interventions have found and what epidemiologists have been predicting.  Increased mingling among people increases the spread of the virus and suggests that further reversals of the re-opening process will be needed to control the virus.  
  • Virus news was mixed overnight.  In New York, the city reported zero COVID-19 deaths for the first time since the pandemic began.  Unfortunately, the story is different in Florida with the state reporting 15,300 new cases, the most ever for any single state.  Outside of the US, several countries took further steps to tighten restrictions in hopes of controlling the virus’ spread. 
  • US-EU tensions continue to linger with US officials confirming that the US would move forward with tariffs against French goods in retaliation for an “internet tax” that would disproportionately impact US companies. 
  • China introduced sanctions against US officials, including Senators Rubio and Cruz, in response to US actions to punish Beijing for its treatment of ethnic minorities in Xinjiang.  China’s actions are seen as largely symbolic.  Additional headlines suggest that US action could be coming against TikTok and WeChat and that a Phase 2 deal is unlikely.  Market reaction to the Phase 2 news has been nonexistent as no one was expecting a substantial trade deal.
  • OPEC+ are in discussions to cut back on production cutbacks as oil demand has regained traction.  A decision could be announced at the cartel’s monitoring committee meeting this week.
  • Singapore’s ruling People’s Action Party won a clear mandate with 83 out of 93 seats in Parliament and 61.2% of the popular vote.
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