Morning Commentary: The Feedback Loop

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

The Feedback Loop Share this story: 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.   HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: 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.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. 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.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2020 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC