A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
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Andrew Kositkun Senior FX Advisor
Health authorities around the world, including the Centers for Disease Control and Prevention, have been tracking both COVID-19-related fatalities and “excess deaths,” or the difference between the actual number of deaths and what would have otherwise been expected given historical trends, demographics, time of year, etc. This statistic is important for two reasons. The first is that it is not impacted by differences across countries in whether deaths are attributed to COVID-19 or some other cause. The second reason is that it captures the indirect impact of the pandemic.
Excess mortality spiked higher and peaked in April as it shadowed the move higher in COVID-19 cases last spring. Spain reached the highest level at 155.8% of normal. This was followed by England and Wales at 113.1% and the U.S. at 45.3%. In contrast, countries, such as South Korea, that had the virus relatively under control saw excess mortality rates below 10%.
The good news is that global excess mortality rates have declined significantly over time, with most countries currently under 30%. Unfortunately, the U.K. is the exception, as its rate moved up from 26.6% to 45.5% over the past few weeks, likely due to the spread of the new and more contagious virus variant. More recently, the U.K. has seen a double-digit weekly decline in case numbers, so the excess death rates should also come down with a lag.
This general downtrend in excess mortality should continue if COVID-19 data and vaccine rollout efficiency keep improving. As such, a reduction in COVID-19 cases and fatalities should trigger a triple play of positive feedback loops: 1) fewer deaths from other causes, 2) more resources to speed up vaccine distribution, and 3) improved ability to track, trace and quarantine patients. All of these are reinforcing trends and support the view for a steady recovery in the economy that begins well before herd immunity is reached.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
Democrats are increasingly moving toward passing stimulus without Republican support. While Democratic leadership continues to prefer a bipartisan solution, the budget reconciliation process will reportedly be started next week with the goal of meeting a mid-March deadline to pass the bill. Reconciliation requires a simple majority but has limitations on what can be included, so portions of President Biden’s proposal would need to be eliminated under this option.
Mexico reported fourth-quarter GDP that rose 3.1% quarter over quarter, meeting estimates. Quarterly growth was driven by rebounds in industrials and services. While the economy continues to recover, it is doing so at a slower pace, with the overall Mexican economy contracting by 8.5% in 2020.
Vaccine issues in Europe continue after the EU decided to restrict exports. Companies seeking to export vaccines outside of the EU will now require approval. This includes exports to the U.K., which is no longer part of the EU.
Political drama in Italy appears to be settling down, as it seems Conte will be able to form a government. While it will be a weakened government, avoiding fresh elections is a market positive. As such, Italian and German yield spreads have tightened.
Economic data out of Japan was mixed, with headline Tokyo CPI and labor market data beating expectations but industrial production and housing data disappointing. Overall, the Japanese economy remains weak, with more stimulus likely on the way.
Johnson and Johnson’s single-dose vaccine, which can be stored for three months as opposed to the Pfizer and Moderna vaccines that have to be frozen, was found to be 66% effective in a global late-stage trial. However, trial data did show that it was 85% effective against severe infections and stopped 100% of hospitalizations and deaths. The company is expected to file for emergency use authorization with the U.S. next week.
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