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Weekly market recap – Central banks use bazookas

With self-isolation and social distancing being advised by most governments, some pilots in their boredom have taken to the skies in order to write virtual messages for anyone who might be watching. The website Flightradar24 which collects such data has tweeted some examples of this aircraft art:

As investors have sought safe haven assets, it is the US dollar that has taken off to lofty highs, cementing its place in investors’ minds as the world’s safest asset. Asset class returns in sterling and local currency are below; it was another volatile week for markets last week as concerns around the economic disruption caused by Covid-19 continued to overwhelm markets.

Table 1: GBP total returns

Source: Bloomberg

Table 2: Local CCY total returns

Source: Bloomberg

Investors in the Western world have had an eye firmly locked onto the fiscal response of governments (in some cases lack thereof) as opposed to the monetary response from central banks. This makes total sense: while most Western central banks such as the US Federal Reserve, the European Central Bank or the Bank of England have moved quickly and aggressively to a supportive stance, they are restricted in the sorts of policies they can pursue. Typically, these banks will use tools like cutting interest rates or buying government bonds which often has a delayed impact on the actual economy.

Source: Bloomberg

This differs from the Bank of Japan which is authorised to go one step further in its asset purchase programme and buy listed equities which it has been doing in recent weeks at a rate that averages ¥100 billion (circa $1 billion) a day! This extraordinary action has led to Japan being the only major region last week to achieve a positive return.

With their other eye, investors have also tried to keep track of the number of globally confirmed cases of Covid-19 in order to gauge whether the pandemic might be slowing. However, poor data quality such as inconsistencies in ho

w widespread testing is across the world po

ses a significant problem. A far more effective way of visualising the data is looking at coronavirus related deaths as opposed to confirmed cases. This is because there are many people who may have self-isolated and show either mild or no symptoms, who are then missed from official statistics. On the other hand, deaths are far easier for officials to count and to keep track.

Source: John Hopkins University

In order to get a sense of whether infection rates are slowing down or not, we can look at charts like the above which use a “logarithmic scale” when showing the data. You’ll notice the scale on the left-hand side of the chart gets exponentially larger

as you move up. We can then look at the gradient (i.e. the steepness) of each line to get an idea whether rates are accelerating or decelerating. We note that China is already significantly further ahead than other countries and has seen its death rate drop off. What is more concerning, however, is how Italy (and increasingly Spain too) appears significantly behind China in terms of timing but ahead for the number of deaths. We’ll use updated versions this chart over the coming weeks to keep you informed of how the situation develops.

 

STAT OF THE WEEK: 23% – the level of app usage and trips planned on public transport in London compared to a typical period at the start of 2020 (Citymapper).

DATA CORRECT AS AT: 20/03/20

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