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Coronavirus – weekly update – 20 May 2020

Coronavirus – weekly update – 20 May 2020

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  • Exits from lockdown proceed with no major mishaps  
  • Stock markets still trading sideways
  • Slow progress in implementing fiscal support a potential risk and source of volatility.

Worldwide COVID-19 cases crossed the 5 million mark, while deaths topped 325,000, as of 20 May.

  • More and more economies are easing their lockdown measures, as data on the human impact of Covid-19 continues to improve, albeit slowly. This is helping sentiment and expectations. So far, in countries that have lifted, or that had light lockdowns, the increase in the number of new Covid-19 cases is not significant, and the infection management is under control.
  • The development of the pandemic in Brazil however, is worrying, as the death toll continues to climb fast. With over 17,000 deaths Brazil is, by some distance, the hardest hit among emerging economies. The shape of the curve implies Brazil is still weeks away from the likely peak (see Exhibit 1 below). The absence of a nationwide lockdown in Brazil, combined with conflicting messaging from the federal government, has aggravated the situation.

Exhibit 1:

For us, the key issue remains that in the absence of vaccine, this virus will be with us for a long time. For this reason, there can be no rapid return to normality.  Levels of acquired immunity remain low according to recent serology studies. The capacity of nation states to conduct mass testing and contact tracing remains limited, with the exception of a few countries in Asia. This, in turn, limits the pace at which re-opening can proceed and sows the seeds of a potential second wave.

A vaccine would be obviously be a game changer.  As we have seen this week, with the positive news from Moderna’s vaccine trial, the market enthusiastically responds to every bit of good news about vaccines, no matter how tentative and preliminary the results. Nonetheless, the consensus among experts remains that a vaccine will not arrive until 2021 at the earliest. The logistics required to support mass manufacture and delivery of the vaccine could further lengthen the timeline.

Economic news

On the data front, the major news is arguably the US data on activity and expenditure for April. The data for the first quarter of 2020 show a far more modest contraction in the US economy than in continental Europe. One plausible explanation is that lockdown measures came in to force later in the United States so the resultant contraction in activity occurred later and therefore had a smaller impact on the March data for the United States. The April data for the United States corroborate this hypothesis somewhat with retail sales, excluding autos, falling over 17% on the month and industrial production falling over 11% on the month.  Nonetheless, it still seems likely that the absolute contraction in activity was larger in Europe. In Italy, for example, industrial production in March fell by almost 30%.

Policy measures – a pivotal moment for the European Union?

The major news this week was the Franco-German proposal for the EU Recovery Fund.  If anything the size of the proposed fund is a slight disappointment – the EUR 500 billions figure is significantly lower than that discussed in an earlier plan, produced by the Spanish government. The proposal does however favour grants over loans. There is hope that this Franco-German plan could prove a pivotal moment in the creation of a genuine federal state.

The proposal has however not yet been adopted. It has already run into resistance from a familiar set of northern European countries. It may require diluting down in order to win the support of all countries. Moreover, we do not yet know how exactly the scheme will work and whether in particular, it will lead to the EU gaining tax revenue streams of its own.

There have been other significant development this week regarding the policy response to the crisis:

  • As the focus shifts from nursing the economy through lock-down to supporting the recovery in demand, we believe that the case for further fiscal stimulus will build. In the United States, the Democrat-controlled House of Representatives has passed another USD 3 trillion stimulus package – called the Heroes Act – but it will not pass the Republican-controlled Senate. However, the Senate Majority Leader, Mitch McConnell has indicated a “high likelihood” that another stimulus bill will eventually pass after negotiation with the Democrats.
  • The crisis will inevitably lead to a significant increase in government debt. Borrowing will automatically rise as the economy contracts and then the combined cost of socialising losses through the lockdown and stimulating demand in the recovery phase will lead to additional borrowing. This inevitably raises questions about how this additional debt-load will be serviced. The Governor of the Bank of England has signalled that his central bank will engage in persistent monetary financing to help the UK Government manage the huge cost of fighting the pandemic by “smoothing the profile of government borrowing and the impact that might have on financial markets”.
  • Central banks will also need to provide sustained and significant monetary stimulus to the economy to support a recovery in demand once the social distancing measures are removed. One of the most contentious issues here is whether that stimulus should involve negative interest rates. Central banks have sent mixed messages on this point in the last week: Chair Powell continues to signal his discomfort with negative rates as a tool of monetary policy but several members of the Bank of England’s Monetary Policy Committee seem open to the idea in the United Kingdom.

Market outlook

  • Activity data in China is showing a marked improvement as lockdowns are lifted and recovery gains ground. In our view, China points the way forward for those economies coming out of lockdown. In turn, this should be positive for oil prices as demand starts to pick up.
  • In the short run, the current glass is half-full backdrop should continue for now with slightly lower volatility and markets drifting sideways. This cautious positive tone is supported by the expectation of more fiscal/monetary stimulus. However, the lack of implementation of fiscal support remains a risk and a source of volatility.
  • The key headwind to implementation of additional fiscal support, is political fragmentation. This is currently delaying the introduction of broad-based fiscal initiatives in both Europe and the US.
  • Whilst the market is pricing in a broad-based recovery, we see the risk that this recovery as being more uneven, pushing earnings and credit dispersion up, with entire sectors or even countries coming under significant pressure. Asset selection and risk allocation are likely to be more important than outright market calls in such an environment.

Denis Panel, Chief Investment Officer Multi Assets & Quantitative Solutions, and Marina Chernyak, senior economist and coordinator of COVID-19 research.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Writen by Marina Chernyak. The post Coronavirus – weekly update – 20 May 2020 appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.

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Government

Head Of The Lancet’s COVID-19 Investigation Is “Convinced” It Came Out Of A Lab

Head Of The Lancet’s COVID-19 Investigation Is "Convinced" It Came Out Of A Lab

Authored by Steve Watson via Summit News,

The head of the…

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Head Of The Lancet's COVID-19 Investigation Is "Convinced" It Came Out Of A Lab

Authored by Steve Watson via Summit News,

The head of the preeminent scientific journal The Lancet’s COVID-19 origins Commission is ‘convinced’ that the virus came out of a lab and says that a real investigation is being blocked.

Professor Jeffrey Sachs told Current Affairs that he is “pretty convinced [COVID-19] came out of US lab biotechnology” and has warned that ongoing research could lead to another pandemic outbreak.

Sachs notes that scientists who dismissed the lab leak theory did so “before they had done any research at all,” adding “they’re creating a narrative. And they’re denying the alternative hypothesis without looking closely at it.”

Sachs points to the ‘gain of function’ research and the genetic markers found in the SARS-Cov-2 coronavirus that indicate it was manipulated to be more deadly.

“What’s interesting, and concerning if I may say so, is that the research that was underway very actively and being promoted, was to insert furin cleavage sites into SARS-like viruses to see what would happen. Oops!” Sachs states.

“They’re not looking,” Sachs says of scientists who dismiss the lab leak, adding “They just keep telling us, ‘Look at the market, look at the market, look at the market!’ But they don’t address this alternative. They don’t even look at the data. They don’t even ask questions. And the truth is from the beginning, they haven’t asked the real questions.”

Sachs further labels the efforts to distract from the lab research as “misdirection” and “sleight of hand”.

“There is a huge amount of reason to believe that that research was underway. Because there are published papers on this. There are interviews on this. There are research proposals. But NIH isn’t talking. It’s not asking. And these scientists have never asked either,” Sachs further asserts.

He continues, “From the very first day, they have kept hidden from view the alternative. And when they discuss the alternative, they don’t discuss the research program. They discuss complete straw men about the lab, not the actual kind of research that was underway, which was to stick furin cleavage sites into SARS-like viruses in a way that could have created SARS-Cov-2.”

“What I’m calling for is not the conclusion. I’m calling for the investigation,” Sachs urges, adding “Finally, after two and a half years of this, it’s time to fess up that it might have come out of a lab and here’s the data that we need to know to find out whether it did.”

Sachs also addresses EcoHealth Alliance and Peter Daszak, noting that he originally personally appointed Daszak to chair the task force of the Lancet’s pandemic commission.

Sachs says “I realized he [Daszak] was not telling me the truth. And it took me some months, but the more I saw it, the more I resented it. And so I told him, ‘Look, you have to leave.'”

Sachs adds that once he fired Daszak, other scientists began attacking him.

“I asked them: “What are your connections with all of this?” They didn’t tell me. Then when the Freedom of Information Act released some of these documents that NIH had been hiding from the public, I saw that people that were attacking me were also part of this thing. So I disbanded that whole task force,” Sachs notes.

“So my own experience was to witness close up how they’re not talking. And they’re trying to keep our eyes on something else. And away from even asking the questions that we’re talking about,” Sachs further warns.

Sachs concludes that he “Doesn’t trust” the governments and scientists who are dismissing the lab leak theory, adding “I want to know. Because even what we know of the dangerous research is enough to raise a lot of questions of responsibility for the future. And to pose the question: ‘Hey, what other viruses are you guys working on? What should we know?'”

“I want to know what’s being done. I want to know what other governments are doing, too, not just ours. I want some global control over this stuff,” Sachs further urges.

The professor finally calls for “a bipartisan congressional oversight investigation that has subpoena power,” urging “Give us your lab records, your notebooks, your data files of virus strains, and so forth.”

As we have highlighted, this is what Senator Rand Paul is pursuing relentlessly.

Following an initial hearing last week before the Senate Homeland Security and Governmental Affairs subcommittee, Paul revealed that there is a committee that is supposed to oversee experimentation with potentially lethal viruses, but that it is above the oversight of Congress.

“We don’t know the names. We don’t know that they ever meet, and we don’t have any records of their meetings,” the Senator noted, adding “It’s top-secret. Congress is not allowed to know. So whether the committee actually exists, we’re uncertain.”

*  *  *

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Tyler Durden Wed, 08/10/2022 - 06:30

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Spread & Containment

$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research…

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$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research (IAB) on Tuesday outlines how Germany's economy will lose a whopping 260 billion euros ($265 billion) in added value by the end of the decade due to high energy prices sparked by Russia's invasion of Ukraine which will have severe ramifications on the labor market, according to Reuters

IAB said Germany's price-adjusted GDP could be 1.7% lower in 2023, with approximately 240,000 job losses, adding labor market turmoil could last through 2026. It expects the labor market will begin rehealing by 2030 with 60,000 job additions.

The report pointed out the hospitality industry will be one of the biggest losers in the coming downturn that the coronavirus pandemic has already hit. Consumers who have seen their purchasing power collapse due to negative real wage growth as the highest inflation in decades runs rampant through the economy will reduce spending. 

IAB said energy-intensive industries, such as chemical and metal industries, will be significantly affected by soaring power prices. 

In one scenario, IAB said if energy prices, already up 160%, were to double again, Germany's economic output would crater by nearly 4% than it would have without energy supply disruptions from Russia. Under this assumption, 660,000 fewer people would be employed after three years and still 60,000 fewer in 2030. 

This week alone, German power prices hit record highs as a heat wave increased demand, putting pressure on energy supplies ahead of winter. 

Rising power costs are putting German households in economic misery as economic sentiment across the euro-area economy tumbled to a new record low. What happens in Germany tends to spread to the rest of the EU. 

There are concerns that a sharp weakening of growth in Germany could trigger stagflation as German inflation unexpectedly re-accelerated in July, with EU-Harmonized CPI rising 8.5% YoY. 

Germany is facing an unprecedented energy crisis as Russian natural gas cuts via the Nord Stream 1 pipeline will reverse the prosperity many have been accustomed to as the largest economy in Europe. 

"We are facing the biggest crisis the country has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years," Rainer Dulger, head of the Confederation of German Employers' Associations, warned last month. 

Besides Dulger, Economy Minister Robert Habeck warned of a "catastrophic winter" ahead over Russian NatGas cut fears.

Other officials and experts forecast bankruptcies, inflation, and energy rationing this winter that could unleash a tsunami of shockwaves across the German economy.  

Yasmin Fahimi, the head of the German Federation of Trade Unions, warned last month:

"Because of the NatGas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry." 

IAB's report appears to be on point as the German economy seems to be diving head first into an economic crisis. Much of this could've been prevented, but Europe and the US have been so adamant about slapping Russia with sanctions that have embarrassingly backfired. 

Tyler Durden Wed, 08/10/2022 - 04:15

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International

“Anything But A Cashless Society”: Physical Money Makes Comeback As UK Households Battle Inflation

"Anything But A Cashless Society": Physical Money Makes Comeback As UK Households Battle Inflation

The World Economic Forum (WEF) has been…

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"Anything But A Cashless Society": Physical Money Makes Comeback As UK Households Battle Inflation

The World Economic Forum (WEF) has been pushing hard for a 'cashless society' in a post-pandemic world, though physical money has made a comeback in at least one European country as consumers increasingly use notes and coins to help them balance household budgets amid an inflationary storm

Britain's Post Office released a report Monday that revealed even though the recent accelerated use of cards and digital payments on smartphones, demand for cash surged this summer, according to The Guardian. It said branches handled £801mln in personal cash withdrawals in July, an increase of 8% over June. The yearly change on last month's figures was up 20% versus the July 2021 figure of £665mln.

Across the Post Office's 11,500 branches, £3.31bln in cash was deposited and withdrawn in July -- a record high for any month dating back over three centuries of operations. 

The report pointed out that increasing physical cash demand was primarily due to more people managing their budgets via notes and coins on a "day-by-day basis." It said some withdrawals were from vacationers needing cash for "staycations" in the UK. About 600,000 cash payouts totaling £90mln were from people who received power bill support from the government, the Post Office noted. 

Britain is "anything but a cashless society," according to the Post Office's banking director Martin Kearsley.

"We're seeing more and more people increasingly reliant on cash as the tried and tested way to manage a budget. Whether that's for a staycation in the UK or if it's to help prepare for financial pressures expected in the autumn, cash access in every community is critical," Kearsley said.

We noted in February 2021, UK's largest ATM network saw plummeting demand as consumers reduced cash usage. At the time, we asked this question: "How long will the desire for good old-fashioned bank notes last?

... and the answer is not long per the Post Office's new report as The Guardian explains: "inflation going up and many bills expected to rise further – has led a growing numbers of people to turn once again to cash to help them plan their spending." 

So much for WEF, central banks, and major corporations pushing for cashless societies worldwide, more importantly, trying to usher in a hyper-centralized CBDC dystopia. With physical cash back in style in the UK, the move towards a cashless society could be a much more challenging task for elites than previously thought. 

Tyler Durden Wed, 08/10/2022 - 02:45

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