A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Share this story:
Andrew Kositkun Foreign Exchange Head Trader
Across the world, the appetite for blanket shutdowns has waned. Going forward, virus mitigation will be done through a combination of targeted measures, voluntary steps and immunity. The effectiveness of these steps all rely on the powerful principle of heterogeneity.
It is well accepted that different forms of economic activities spread the virus more than others. This dispersion increases the “bang of the buck” from measures that target certain sectors.
Countries have seized on this fact and focused on the 3Cs of closed spaces, crowded places and close contact conversations to identify super spreading events. Japan’s virus response is probably the most explicit example of this with the country cancelling sporting events and closing bars and gyms while keeping other parts of the economy open.
The second type of important heterogeneity is the different levels of vulnerability among people. A recent paper from MIT considered the impact of various types of policies including uniform lockdowns, measures that are more targeted, and systems of testing, tracing and isolation. What the authors found is that better outcomes are possible if blanket lockdowns are replaced by targeted measures.
Specifically, the researchers found that longer and stricter lockdowns for older people combined with less strict and shorter lockdowns for everyone else results in a better death/output loss trade off relative to uniform shutdowns. This result improves further if “group distancing” that limits contact between vulnerable people and the rest of the population is added in. Finally, a system of contact tracing and isolation provides another level of improvement.
Heterogeneity should allow countries to use a scalpel (via policy or voluntary behavior) and not a sledge hammer to combat virus outbreaks. This is clearly a good thing for the economy and represents one of the arguments for why the current surge in infections will cause a leveling off of activity rather than a collapse.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
Coronavirus infection data continues to trend the wrong way. The US recorded ~70K new cases yesterday, setting a new daily record. Globally, India has surpassed 1 million total cases and Japan set a new daily record for new cases with cases also rising in Australia, Hong Kong and the Philippines among others.
Congress returns from recess on Monday and has a small window to strike a deal on another stimulus package with both sides still far apart. Case in point, President Trump insists that a payroll tax cut must be included. This is a deal-breaker for Democrats and some Republicans as it will not benefit those that are unemployed. To this point, the $600/week enhanced jobless benefit is set to expire at the end of the month.
The EU Summit will be held today and tomorrow in Brussels. The Frugal Four countries continue to represent opposition and German Chancellor Merkel has expressed caution on wrapping up the rescue package this month. Nevertheless, the view still remains for a deal to eventually get done.
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:
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.
Tune in for a guide to ETFs and investing strategies for potential long-term success. View in a browser Fidelity Fidelity Log in Creating a portfolio with ETFs: Why and how Creating a portfolio with ETFs: Why and how