The number of new COVID-19 cases continues to grow around the world. In Japan, the number of new cases rose above 4,500 cases on Dec. 31, while the number of critically ill patients continues to set new record highs.
The sense of caution among Japanese households has also been increasing, with recent mobility data showing a sharp decline in foot traffic since the end of December. Given the time of year, holiday effects could account for some of this drop, but traffic around temples, shrines and entertainment districts during the holiday period was also down. This suggests that the spike in cases is in fact keeping people at home. Further, JCB Consumption NOW, which is based on credit card transaction data, shows a large decline in spending during December primarily due to large drops in dining out and travel.
According to media outlets, the Japanese government is preparing to declare a state of emergency (SOE) in response to rising COVID-19 cases for the four prefectures comprising the Greater Tokyo area as early as this week. This marks a reversal from the government’s previously cautious stance toward such a declaration.
At Prime Minister Yoshihide Suga’s New Year’s press conference, he emphasized that new SOE measures would be “targeted and intensive” and focused primarily on restaurants and bars. As a result, this SOE should have less of an economic than the previous round that ran from April through May and hit a broader range of businesses.
When it comes to assessing the economic impact of an SOE, it’s also important to remember that, as it currently stands, business closure requests are not legally enforceable. Although, the government is currently in the process of revising this in the upcoming legislative session. Nevertheless, an SOE is still a strong message from the government and is still likely to lead to an adverse economic impact through its effect on sentiment. Additionally, should an SOE be declared for Greater Tokyo, expect the moratorium on the “Go To” domestic tourism promotion campaign (currently suspended through Jan. 11) to be extended further. | |
| HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: | |
- The two Georgia Senate runoff elections will be in focus today. The most recent polls have moved mostly in favor of Democrats, but the reliability of polling has taken a hit over recent election cycles. Should the Democrats win both seats, the Senate would be split 50-50, with Vice President-elect Harris casting the tie-breaking vote. The expectation is for further stimulus, U.S. dollar weakness and higher yields should the Democrats win.
- U.S. ISM manufacturing PMI increased to 60.7 from 57.5 and easily beat expectations for a 56.8 print. This month’s gains represents the fastest pace of expansion since 2018.
- Stocks in Europe fell after England announced its third national lockdown that will run through mid-February. The economic implications of another lockdown are clearly negative, with the U.K. economy likely to contract in the first quarter. Additional stimulus has been announced, but more aid will likely be needed, as the lockdown will also delay the overall recovery. Additionally, increased QE from the Bank of England is likely.
- In Asia, shares in Hong Kong and China received a boost after the NYSE made an abrupt U-turn on its decision to delist three state-owned Chinese telecom companies. The reason for the change remains unclear, with the exchange only saying it came after consulting with relevant regulatory authorities.
- On the vaccine front, Israel approved Moderna’s vaccine, with the EU expected to come to a decision tomorrow. Despite being a vaccine front-runner, Israel also announced additional lockdown measures.
- OPEC+ talks kicked off again, giving producers another opportunity to work through their differences on February output plans. Talks were halted yesterday after members rejected Russia’s push for production increases.
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