The health ministry reaffirms that it is taking the situation very seriously
A key development in the latest coronavirus update in Germany is that the virus reproduction rate saw an increase to 1.13 as of yesterday. Although the measure does come with a bit of lag, it is still a bit of a concern as it exceeds the key threshold of 1.00.
Merkel had previously stated that the country’s healthcare system would reach its capacity by October with a virus reproduction rate of 1.10 but this is a slippery slope to be going down. An increase to 1.30 would mean the healthcare system is maxed out in June.
Despite the figure jumping, I would say we’ll have to see how the trend continues over the next week or so before reaching any real conclusions. If the infection rate remains above 1.00 then, it could very well be a setback for Germany and its plans to reopen the economy.
This will bring the total production cut to 4.8 mil bpd from April levels
The Saudi energy ministry says that with this move, it is aiming to encourage other OPEC+ participants and other global producers to comply with the agreed output cuts. Adding that the additional 1 mil bpd of voluntary cuts is to support stability of the oil market.
This will bring the kingdom’s total production volume for June to 7.492 mil bpd.
The news is helping to give oil prices a substantial lift ahead of North American trading, with WTI crude jumping from $24.05 to $24.80 currently.
Update: WTI crude now up 2% to $25.30.
Latest data released by the SNB – 11 May 2020
- Domestic sight deposits CHF 586.5 bn vs CHF 579.5 bn prior
Prior week’s release can be found here. Sight deposits continue to pick up and this continues to suggest that the SNB is still actively and strongly intervening in the market to smooth out the appreciation in the franc over the past two months.
Learning from history
Here are a selection of interesting pieces I have come across in learning lessons from the ‘Spanish’ flu of 1918. Now the two pandemics are different. Our COVID19 pandemic primarily targets older people, while the Spanish flu hit those in the 20-30’s age bracket. The Spanish flu claimed over 45 million, but almost certainly never started in Spain!
What is the value of a single life (answer $10 million?)
Check out this article for an interesting piece commenting on some research by Harvard University economist Robert Barro who argues that social distancing in 1918 did not work to reduce deaths because it did not last long enough. Barro argues that 12 weeks of social distancing works much better than 4-6 weeks.
Pandemics come in waves
– This National Geographic piece picks up the fact that pandemics tend to move in waves. A key takeaway is that we are unlikely to see a ‘one and done’ reaction. It is more likely to see a few waves of infections until we have a successful vaccine. Take a look at the Spanish flu waves seen in 1918/1919 in the chart below:
This an interesting Guardian piece:
It seems that epidemics follow a similar pattern: They are ignored or dismissed until they are impossible to turn a blind eye too. That was very similar to the path of this pandemic.
Bank of Japan ‘Summary of Opinions’ from April’s monetary policy meeting
Summary headlines via Reuters:
- Japan’s economy likely to remain in severe state for time being, downside risks high on prospects for recovery
- short-term slump blamed on pandemic may not necessarily determine medium-, long-term path of Japan’s economy
- Japan’s economy likely to improve, see prices pick up once pandemic subsides
- timing of hitting price goal to be delayed as Japan’s economy may face contraction as sharp as during the great depression in 1930s
- must take steps focused on liquidity provision, also guard against further deterioration in economic conditions
- must closely monitor financial system, keeping in mind risk some japan bank loans could turn sour
- appropriate to change BOJ’s forward guidance to one tied to impact of pandemic as economy already lost momentum to hit price goal
- policymakers must act boldly to avoid repeat of great depression, there is room for more fiscal, monetary policy coordination as Japan faces risk of deflation
- BOJ must re-examine effectiveness of its current policy to prevent japan from slipping back into deflation
- BOJ must guide monetary policy keeping in mind chance pandemic may not subside quickly
- Japan may face ‘reversal rate’ situation earlier than expected if interest rates fall further while financial institutions’ balance sheet becomes eroded by pandemic fallout
Fed’s Powell is to speak at a Peterson Institute for International Economics event (webinar)
- He is billed to discuss his economic outlook, but is also to expected to address monetary policy (more on this below)
- text with a Q&A to follow
- Wednesday 13 May at 1300GMT
In brief – while there has been intense speculation about the Fed moving to negative interest rates, it seems likely Powell will push back on this. Other Fed officials who have spoken recently have all expressed caution on moving to negative rates but it may be time to wheel out Powell to more effectively quash the chatter.
Some of the recent remarks on likely negative rates have come from big hitters in the industry, while market pricing has also indicated sub-zero rates.
- Scott Minerd, global chief investment officer of Guggenheim Partners said on Friday he expects rates below zero ‘soon’ – he cited declining Treasury yields
- Other market movements are also reflecting expectations – eg. falling LIBOR,
- Jeffrey Gundlach, co-founder of DoubleLine Capital tweeted last week on mounting pressure on fed funds to go negative and said “fatal” consequences may have brought the expectations to the fore (more here: Jeffrey Gundlach says pressure building on Fed funds to go negative)