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Coronavirus – weekly update – 29 April 2020

Coronavirus – weekly update – 29 April 2020



  • Reopening economies: more haste, less speed
  • Watching for a fresh spike in the curve
  • Mass testing remains an important signpost
  • Markets switch into risk-on mode
  • A key week for central banks

The COVID-19 caseload has now reached almost 3 million infected cases and there have been over 210 000 fatalities. The death toll is on the decline now in Europe and appears to have plateaued in the US, albeit at a high level. As always, we highlight that caution must be taken in interpreting the data in both the time series and the cross section, given the different approaches to measurement and testing across countries.

Exhibit 1

Reopening economies: more haste, less speed

It is important to put the relative success in suppressing the spread of the virus in context. It has been achieved through placing many societies in lockdown. Now, a number of countries are preparing to exit the shutdown. Plans vary from place to place, both in terms of the pace and the extent to which measures are relaxed and the detail available in the public domain.

For example, consider the following:

  • France: Prime Minister Edouard Philippe announced a plan to begin reopening the economy from 11 May – with implementation varying from region to region. Companies will be encouraged to persist with teleworking. Public transport will resume. Schools will reopen gradually from 11 May, albeit with social distancing rules limiting class sizes. Cafes, restaurants and venues which host large numbers of people (such as cinemas) remain closed. Large gatherings of more than 5 000 people will remain prohibited until September.
  • Spain: the prime minister announced a multi-stage exit plan to be completed over six to eight weeks, with the pace of implementation varying from province to province. It allows for a gradual reopening of society – from restaurants and cinemas to places of worship – often subject to social distancing restrictions (for example, restaurants’ capacity is limited to a third). Long-distance travel may still be prohibited and face masks would be ‘highly recommended’ when public transport resumes.

The motivation for the exits is clear. In the words of Edouard Philippe: “We must protect the French without immobilising the country to the point where it collapses.”

Watching for a fresh spike in the curve

However, there is a real risk of a second wave erupting as the extreme measures are lifted. That is, the caseload could start to rise rapidly again. That may force a cessation of the exit measures at the very least and potentially the re-imposition of stricter measures that would cause renewed economic stress.

Indeed, Jasmina Panovska-Griffiths, a senior research fellow and lecturer in mathematical modelling at University College London, argues that these multiple waves are a characteristic feature of this kind of pandemic.[1]

“The 4 major flu pandemics of the past century – the Spanish flu, Asian flu, 1968-70 Hong Kong flu and swine flu – came in several waves, too. The 1918 Spanish flu pandemic that killed more than 50 million people hit in three waves, with the second killing more people than the first.”

A second wave is not inevitable. Governments can calibrate their exit strategy carefully to control the spread of the population to suppress the spread of the virus. Not every country will be able to relax measures at the same pace.

Mass testing remains an important signpost

The capacity of the authorities to conduct diagnostic testing and contact tracing on an industrial scale to catch new cases as they emerge will likely prove a key constraint on exiting any restrictions.  

In some cases, it is possible that the virus has already affected enough people that the population is approaching herd immunity, so that the virus can no longer spread easily from person to person. Sweden’s ambassador to the US has claimed that Stockholm may soon approach this situation.

However, the consensus among scientists is that the majority of the population in many countries will need to be exposed to the virus before herd immunity is established. Current estimates suggest that even in the urban hotspots such as New York City, we are far short of herd immunity.

Markets switch into risk-on mode

The evolution of new cases and in particular new fatalities in countries which exit lockdown is a key sign-post for the market. The faster those countries can ease the quarantine measures, the sooner they can resuscitate their economies.

With much of the global economy still in lockdown, concerns about a second wave may still be rife among investors, while a vaccine is still elusive.

However, news of falls in the number of new COVID-19 cases and a move towards a relaxation of lockdowns in some countries has given a more optimistic tone to markets over the last week. For example, the US S&P 500 equity index erased roughly half of the loss sustained between 14 February and 23 March. In our view, late March was certainly not the right time to sell risk assets.

Exhibit 2

A key week for central banks

This week, ending 1 May, is a key week for central banks – the Bank of Japan (BoJ) met on Monday, the Federal Open Market Committee (FOMC) meets today and the ECB on Thursday.

• The BoJ on Monday removed the numerical guidance of JPY 80 trillion per year on its JGB government bond purchases. While, by itself, this does not imply a loosening of monetary policy as the BoJ’s current yield curve control (YCC) framework already allows for unlimited JGB purchases, it does have an important symbolic value. By buying “without setting an upper limit,” the central bank might strengthen the impression in the market that it is moving towards debt monetisation, pointing to a potential direction for other central banks. This action should keep the yen lower and prevent yields from rising.

• A reassertion by Fed Chair Powell of his ‘whatever it takes’ approach is expected along with an assessment of the economic outlook and the Fed’s response. This scheduled FOMC meeting is the first since the emergency actions taken through inter-meeting decisions on 3, 15 and 23 March. We expect Mr Powell to announce the expansion of the USD 500 billion MLF (state & local government) and the USD 600 billion MSNLF/MSELF (SME) facilities. These are yet to be launched and should further help improve access to US dollar liquidity.

• The ECB may also send a strong message – namely that it is ready to increase the PEPP asset purchase envelope to buy BB rated bonds if needed. This is a potentially important move in view of the recent increase in bond risk premiums. The ECB’s decision last week to relax its collateral eligibility criteria to include BB paper paves the way for this next step. This announcement was key in underpinning support for ‘peripheral’ eurozone bonds.

• The European Union Council last week failed to provide a definitive answer to the question of how the fiscal bill of COVID-19 will be split across the EU. It did agree in principle to set up a ‘recovery fund’. However, there was no agreement on the size, funding, distribution and timing. Hopefully, the council will agree on some of these points by the next meeting on 6 May. Lack of agreement on the ‘recovery fund’ remains a key risk for Europe, the euro and ‘peripheral’ bond markets in particular.

Oil continues to trade weak, especially ahead of the next WTI futures contract expiry. We see this putting pressure on the external accounts of oil producers the GCC, Colombia and Mexico. However, it should be good for the trade balances of Japan, Turkey, India and South Africa. This should continue to drive up dispersion in emerging markets.

• The continued rise in jobless claims in the US is pointing to double-digit unemployment rates. This could imply a significant rise in mortgage and other consumer loan delinquencies, potentially greater than that seen in 2008. While the fiscal injection through the CARES Act should help alleviate some of this stress, the effectiveness of the current support programmes remains to be seen.

• Latest data out of Asia, where we are seeing lockdowns being lifted, still points to continuing weak consumer activity as people remain wary of taking public transport and engaging in activities that could bring them into contact with a high number of people. This could be a good pointer to the economies of those countries that are looking to partially lift their lockdowns.

Earnings season continues, with analysts repeatedly cutting their estimates. There have been positive surprises, but the market is more focused on the prospect of economies reopening and earnings recovering in 2021. As a result, equities have continued to trade at record high price/earnings multiples. Given what futures are telling us about dividends and volatility in 2021-22, these multiples look challenging.

Asset allocation view

In summary, we believe our set of signposts will become ever more important now that valuations have been reset and there is greater two-way risk.

In terms of asset allocation, we continue to be long market risk strategically. We recently entered an overweight position in European and US investment-grade credit (financed by government bonds) and are long emerging market and UK equities; long commodities and long EM hard currency debt.

However, we also lowered our risk exposure tactically with short positions in the S&P 500 and in eurozone equities ahead of more news on the economic damage caused by the virus and given the risks associated with the exit strategies from lockdowns. We are now waiting patiently for a market setback to increase our risk exposure again in the near future.

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

[1] Also see Coronavirus: when should we lift the lockdown? on

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 – 29 April 2020 appeared first on Investors' Corner - Der offizielle Blog von BNP Paribas Asset Management.

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Highlights of My Weekly Reading and Viewing

Timothy Taylor, “Some Economics of Pharmacy Benefit Managers,” The Conversable Economist, September 28, 2023. This is the nicest treatment of the facts…



Timothy Taylor, “Some Economics of Pharmacy Benefit Managers,” The Conversable Economist, September 28, 2023. This is the nicest treatment of the facts that I’ve seen. I confess that I’ve seen PBMs as something of a black box rather than doing the standard middleman treatment that Tim does.

Tim highlights the work of Matthew Fiedler, Loren Adler, and Richard G. Frank in “A Brief Look at Key Debates About Pharmacy Benefit Manufacturers,” Brookings Institution, September 7, 2023.

Ending paragraph:

As in most economic discussions about the role of middlemen, it’s important to remember that they (usually) don’t just sit around with their hands out, collecting money. Some entity needs to negotiate on behalf of health insurance companies with drug manufacturers and pharmacies. Some entity needs to process insurance claims for drug prices. I do not mean to defend the relatively high drug prices paid by American consumers compared to international markets, nor to defend the costs and requirements for developing new drugs, nor to defend some of the mechanisms used by drug companies to keep prices high. But while it might be possible to squeeze some money out of PBMs for slightly lower drug prices, and it’s certainly possible to mess up PBMs in a way that leads to higher drug prices, it doesn’t seem plausible that reform of PBMs is going to be a powerful lever for reducing drug prices.

Thomas W. Hazlett, “Maybe Google Is Popular Because It’s Good,” Reason, September 27, 2023. I think Hazlett is the best writer in economics. This piece is a good sample.

An excerpt:

The innovation was simple in design, complex in execution, and radical in result. The business achieved a rare triple play: First, a robust new web crawler devised a superior method for finding and tagging the world’s digital content, deploying cheap PCs linked in formations to achieve momentous computing power (Brin’s genius). Second, this more prolific database of global digital content was better cataloged. A clever “Page Rank” score evaluated keyword matches, countering the influence of scammers by scrutinizing the quality of their web page links (Page’s inspiration). Third, “intention-based advertising” displayed commercial messages to searchers self-identified as ready to buy. For instance, the internet user wondering about “coho salmon, Ketchikan, kids” gave Hank’s Family Fishing B&B in Alaska a digital target for its 10 percent off coupon, while signaling to Olay not to bother advertising its skin care products. This solved the famous marketing dilemma: “I know I’m wasting half my ad budget, I just don’t know which half.” Businesses loved these tiny slices of digital real estate, and Google mined gold.

Fiona Harrigan, “America’s Immigrant Brain Drain,” Reason, October 2023.


In June, The Hechinger Report outlined how foreign governments are welcoming U.S.-trained international students. The United Kingdom offers a “high potential individual” visa, which authorizes a two-year stay and is available to “new graduates of 40 universities….21 of them in the United States.” Recruiters from Australia are “attending job fairs and visiting university campuses” in the United States. From 2017 to 2021, according to the Niskanen Center, a Washington-based think tank, Canada managed to attract almost 40,000 foreign-born graduates of American universities.

Most international students want to stay in the U.S. after graduating, but very few are able to do so. The U.S. does not have a dedicated postgraduate work visa. Canada and Australia, meanwhile, have streamlined the steps from graduation to employment to permanent residency. Graduates in the U.S. can complete Optional Practical Training, but it does not lead to permanent residency and lasts a maximum of three years.

Personal note: Actually the maximum of 3 years for Practical Training sounds good. When I took advantage of the F-1 Practical Training visa to be on the faculty of the University of Rochester, the max was only 18 months.

David Friedman, “Consequences of Climate Change,” September 24, 2023. David does his typical calm, clear, masterful job of laying out the facts. He takes the IPCC reports as given and then follows the implications, uncovering a lot of misleading claims in the process. While David takes as given that the earth will heat about another degree centigrade by about the end of the century, he lays out why we can’t be sure that the net effects are negative or positive. Watch about the first 35 minutes of his speech, before he gets to Q&A. I would point out highlights but there is zinger after zinger. And he references his blog and his substack where you can get details.

The pic above is of David Friedman giving his talk.


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Russia’s Military Budget Set To Rise By 70%

Russia’s Military Budget Set To Rise By 70%

Via Remix News,

Russian military spending is set to rise by almost 70 percent — to €106…



Russia's Military Budget Set To Rise By 70%

Via Remix News,

Russian military spending is set to rise by almost 70 percent — to €106 billion — by 2024, according to a Russian Finance Ministry document published Thursday, an increase that illustrates Moscow’s determination to continue its military intervention in Ukraine despite the human and economic costs.

According to the document, Russian defense spending will increase by 68 percent in 2024 compared to this year and will reach 10.8 trillion rubles (€106 billion).

As a result, the amount allocated to defense will represent about 30 percent of total federal spending in 2024 and 6 percent of GDP — a first in Russia’s modern history.

The budget for internal security is set to rise to 3.4 trillion rubles (€33 billion), almost 10 percent of annual federal spending.

The priorities for this budget are outlined as “strengthening the country’s defense capacity” and “integrating the new regions” of Ukraine whose annexation Moscow has demanded, as well as “social aid for the most vulnerable citizens,” just months ahead of the Russian presidential elections in spring 2024.

Conversely, total spending on education, healthcare and environmental protection accounts for barely a third of the defense budget, according to ministry figures. Overall, federal spending will total 36.7 trillion rubles (€359 billion), a dramatic 20 percent increase over 2023.

The government, however, has explained little about how it will finance this large increase, as Russian Prime Minister Mikhail Musustin said last Friday that revenues from the sale of hydrocarbons will be down sharply and will account for “a third of next year’s budget” in 2024, whereas before the invasion of Ukraine, they accounted for half the budget.

The sector used to drive Russia’s growth, hydrocarbon sales are declining due to international sanctions and the European Union’s determination to move away from energy dependence on Moscow.

One indication that the government expects a delicate month ahead for the Russian economy is that it has announced that it has based its budget forecast on the assumption of a dollar worth around 90 rubles, thus betting on a weakening of the national currency in the medium term. The draft budget law for 2024-2026 is due to be sent to the State Duma, Russia’s lower house of parliament, on Friday.

Tyler Durden Sun, 10/01/2023 - 08:10

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Atlantic Overfishing: Europe’s Worst Offenders

Atlantic Overfishing: Europe’s Worst Offenders

Each year, agriculture and fisheries ministers decide on total allowable catches (TACs) for…



Atlantic Overfishing: Europe's Worst Offenders

Each year, agriculture and fisheries ministers decide on total allowable catches (TACs) for commercial fishing.

Scientific bodies, such as the International Council for the Exploration of the Sea (ICES), provide information on the state of fish stocks around the world and recommend maximum catch levels per zone to ensure sustainable fishing.

However, this scientific advice is all too often ignored by the authorities, jeopardizing the sustainability of marine resources.

Statista's Martin Armstrong shows in the following infographic, based on the latest report from the New Economics Foundation, these European countries are the worst offenders for this, having on numerous occasions set their fishing quotas in the North-East Atlantic in excess of the sustainability recommendations in recent years.

You will find more infographics at Statista

Sweden exceeded its recommended TAC by almost 33 percent in 2020 (the latest year available), equivalent to 12,000 tonnes of fish, followed by Denmark (6 percent, 20,000 tonnes) and France (6 percent, 17,000 tonnes).

Ireland, Belgium, Spain and the UK all exceeded their targets by between 2 and 4 percent.

The year before, in 2019, the overshoot of the sustainable fishing threshold in the zone was even more pronounced: 7 percent of the recommended TAC for Spain, 9 percent for France, 10 percent for Belgium, 18 percent for Germany, 20 percent or more for Denmark, the United Kingdom and Ireland, and 52% for Sweden.

Tyler Durden Sun, 10/01/2023 - 07:35

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