Morning Commentary: Surge

Foreign Exchange - Morning Commentary
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
As we head into the holiday weekend, we find ourselves unable to participate in many of the traditional holiday activities due to rising infection numbers.  For a second consecutive day, the US reported more than 50k new cases.  The US also surpassed the previous peak of average number of daily COVID-19 cases on a 7-day moving average basis.    

Unfortunately, the share of positive tests has risen to 6.9% from 5.6% last week.  This means that the growth in new infections is not fully explained by the increase in testing.  Infection numbers continue to rise with roughly half the nation’s cases concentrated in four states: California (15%), Florida (14%), Texas (12%) and Georgia (6%). On the positive side, Arizona has stabilized albeit at an elevated rate.  Unfortunately, Tennessee, Alabama, South Carolina and others are worsening rapidly.    

This concerning trend has driven several states to pause their re-opening plans.  Looking at high frequency data shows that the spread of the virus is affecting economic activity and mobility.  While there are many hotspots, I want to focus on California, Texas, Florida and Georgia because each state’s GDP ranks in the top 10.  Based on the Dallas Fed’s mobility index, mobility in these 4 states never reached the lows seen in New York and continues to run above where New York is currently.  However, Texas, Florida and Georgia have all seen a slowdown in mobility as infections numbers have increased.  Conversely, California has not seen the same drawdown in mobility, which likely reflects the fact that the absolute increase in positive tests is largely due to increased testing.  

While the regional data is showing a slowdown in economic activity, the nationwide data is still showing an improvement in the economy.  This continues to point to a continued economic recovery as the nation re-opens.  But the regional data reiterates a point that we all have known for a while: the economy and the path of the virus remain linked.  Should infections continue to increase, the economic impact will eventually show up in aggregate data. 
  • Texas residents were ordered to wear face coverings in public as ICU rooms exceeded capacity.  The Centers for Disease Control forecast as many as 160,000 US fatalities by July 25.
  • The UK continues to move forward with its re-opening plan with PM Johnson warning that he would shut down parts of the economy again if the virus gets out of control.  In China, Beijing eased restrictions after infections stemming from a large wholesale market appears to have slowed.  
  • The standoff between Germany and the ECB has ended. German lawmakers voted to accept the central bank’s explanation for its public sector purchase program and put to rest the German Constitutional Court’s demand to review whether the ECB’s actions met the standard of “proportionate.”  
  • French President Macron has selected Jean Castex to be the new prime minister after suffering defeats at the June municipal elections.  The appointment of Castex to replace Edouard Philippe removes a potential rival for the 2022 presidential election. 
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