Head of Macroeconomic Research
Summary: In today's edition, we explain you why we think Europe will need to take further health and economic measures in order to contain quickly the COVID-19 outbreak.
You have probably seen this chart, or something similar, everywhere. It refers to the worldwide number of new COVID-19 cases per day. While there is no new reported cases in China, the coronavirus peak has certainly not been reached yet in the rest of the world. Following the successful containment of the virus, China’s economy has restarted faster than most expected. A few days ago, FEDEX pointed out that China’s demand has rebounded strongly and that 90% to 95% of large Chinese manufacturers and 65%-70% of small business are operating again. These reassuring figures give hope that a similar rebound may occur in the rest of the world, especially in Europe which is the new coronavirus epicenter. Unfortunately, at this stage, everything suggests that the conditions have not yet been met for an economic rebound to occur so quickly in Europe. There are two notable differences between the health and economic responses of China and Europe to the coronavirus outbreak.
In Europe, the health response is still too slow and too lax in some countries. Though there are numerous factors at play that we don’t fully understand, it seems we can learn some valuable lesson from the Province of Venice in order to fight efficiently the spread of the virus. Probably influenced by Chinese standards, Venice implemented a health response at a very early stage (February), adopted a large scale testing approach (especially targeting the most exposed people: hospital staff, cashiers, policemen etc.) and enforced restrictive home quarantine (for suspected cases and asymptomatic cases). This is still far from being the case in many European countries while it is scientifically proven that these measures are the most effective.
On the economic side, the main issue is the lack of European coordination and demand-oriented support measures. The most obvious economic responses taken at national level consisted in tax deferral, liquidity injections, extending unemployment benefit and avoiding layoff with short-time working paid in part with public money. So far, the coordinated EU response has been ridiculously insufficient. A support package of around 1% of net euro area GDP has been unveiled, including some initiatives that are not new. A bigger stimulus will be need, including tax cuts and cash handouts, if we want Europe to restart when the containment measures will be lifted. Without that, China is unlikely to be a leading indicator for Europe on the economic front.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
