• Matthew Fotheringham

🌎 Bouncing economies | China back on the most wanted list | Bojos back | 3 Things

Updated: May 4


May 1st, 2020


Happy Friday!


As lockdown and border closures have engulfed the world, one elderly couple hasn’t let this get in their way as the pair of lovers, 89 and 85, travel to the German-Danish border every day to enjoy each others company, a true lockdown love story.


Did You Know...


Botswana and Zambia share the smallest border in the world at 150m.


Two countries border the most (14) countries, can you name them?

(Answers below)


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NZD AUD SEK


Open or Shut



Tentative steps are being taken to ease lockdowns globally. This means we are now getting a clearer picture of how different quarantine strategies have performed and how economies are going to be affected moving forward. Comparing countries like New Zealand and Sweden are key to understanding how economies react to extreme scenarios.


New Zealand has set an uncompromising, science-driven example. The country began mandatory quarantines for all visitors on March 15, and 10 days later, it instituted a complete, countrywide lockdown, including a moratorium on domestic travel. As of last Friday, New Zealand has registered a total of 17 deaths from COVID-19 and 1,456 infection cases, with only two new cases confirmed on Friday. However, forecasts suggest the Kiwi economy won’t recover from the total lockdown until at least 2024.


Australia, too, has been effective in implementing early mitigation strategies. PM Morrison limited public gatherings to two people from March 29 and said Australians would only be allowed to leave their house for essential shopping, medical reasons, exercise, or work. At that point, the country recorded 4,159 confirmed cases, including just 15 deaths.


By contrast, Sweden left its schools, gyms, cafes, bars and restaurants open. Instead of lockdown, the government has urged citizens to act responsibly and follow social distancing guidelines. The Swedes start with some advantages, including one of the world’s best-functioning health-care systems; half of Swedish households are single-person, and more people work from home than anywhere else in Europe. Despite having a death rate 6 times higher than their neighbors Norway and Finland. Sweden’s Covid-19 strategy may ultimately result in a smaller economic contraction than the rest of Europe is now facing, according to HSBC Global Research economist James Pomeroy.


With the US having varying strategies across the country a key question for investors is how USD will react? Certain states may have jumped the gun or overestimated peoples eagerness to get out there. California was forced to close beaches due to people not taking social distancing seriously. A number of state’s “shelter-in-place” orders will start expiring. The US is continuing to see a rise in cases and deaths, but also have a population that is nervous to get back to work.


AUD has seen a quick recovery from its extraordinary low a month ago. NZD and SEK, not so much. SEK stayed low with no lockdown, and NZD stayed low with lockdown. At least from an FX perspective, and in the short-term, the currency value is unrelated to the two different strategies.



CNY USD


Trump Has China In His Sights



The Trump administration is exploring retaliatory actions against China over claims the coronavirus leaked from a lab there The president said Monday that the U.S. will likely seek hundreds of billions of dollars in damages from China, and that his administration is considering cancelling debt obligations and more restrictive trade policies.


Of course, there’s severe downsides to this approach. Aggressive measures against China would risk damaging an already fragile economic relationship. Repudiating debt held by China would ruin US credit and turn the financial world upside down - resulting in major self-harm. Just a few months ago, Trump signed the first phase of a trade deal with China after 20 months of painful negotiations; all of which could be reversed. That would have serious repercussions on long-suffering US farmers.


There’s no lack of scientists and intelligence officers contradicting the administration’s claims. DNI (director of national intelligence) Richard Grenell, representing the U.S. intelligence community stated there was broad agreement that the virus was not man-made or genetically modified.


Supporting that intelligence, a March 17 paper published in Nature Medicine, five scientists from a broad coalition including the U.S., the United Kingdom, and Australia- said the scientific evidence shows the virus was not purposefully manipulated and that it most likely came from an animal.


CNY (the onshore renminbi) is still hovering around its multi-year low, fortuitously making China's export-driven economy more competitive. FYI, CNH, (the offshore renminbi) generally tracks CNY closely, and is used by businesses outside of China



GBP


Boris Back At The Helm



Boris celebrated his birth of his 5th child this week and resumed his duties at 10 Downing St. while Dominic Raab stepped aside after holding down the fort whilst Bojo spent a long week in the hospital, including 3 nights in intensive care where he received O2 but was not put on a respirator…


Boris is back just in time to participate in the debate on when and how much to relax restrictions. While Tory MPs and donors have been pressuring NHS to ease some measures, the PM warned the nation he would “refuse” to risk a second wave of coronavirus cases by lifting restrictions too soon. He said it was also the “moment of maximum risk”.


Boris said the risk of a “second spike” would mean a “new wave of deaths” and an “economic disaster”, he said. In any case, no changes are expected before May 7th.


GBP has bounced quickly off its bottom, but not yet reached January 2020 1.30 handle. Still, a far cry from the 1.15 level briefly touched.


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Quiz of the week


China and Russia


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