Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
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Months ago, we have created a new section in our Macro Chartmania devoted to track high-frequency data in order to assess in real-time the evolution of the economy in the time of COVID-19. It includes many statistics referring to the evolution of cases, mobility, and the impact on unemployment for instance. Today, we decided to take a look at mobility data released by Google in its COVID-19 Community Mobility Reports (see here for further insights).
These reports are published on an ongoing basis, with the most recent statistics referring to the situation as it was two to three days ago. In other words, the below chart shows you the trend in terms of visits and length of stay in the retail & recreation sector, one of the most affected sectors by the pandemic, in developed market countries at the end of last week. In our sample of seven countries, the visits to retail & recreation stores are back to pre-COVID level only in two countries (Germany and Italy), with even an increase of 8.5% compared with the baseline in Germany which can be explained by the combination of efficient COVID-19 containment and VAT cut from 19% to 16% till the end of the year as part of the massive and targeted stimulus package unveiled by the country. In Italy, the explanation behind the continued improvement (+3.7% compared with the baseline) is that the country has kept the disease under control due a more gradual lifting of restrictions than in many European counterparts, high public compliance and stricter enforcement.
In contrast, in France, the United States, Spain and Japan, the recovery has stalled with a number of visits that is still below the baseline. Interestingly, we don’t see yet any changes in data related to mobility in France and in Spain where additional restrictions have just been re-introduced to cope with the second wave of the pandemic, but this may be due to a lag between data collection and data publication. For instance, in France, most of the measures were put into force over the weekend, with the closure of schools, shops, pubs and restaurants in the metropolitan region between Aix-en-Provence and Marseille (France’s second largest city).
At the other end of the spectrum, the resurgence of COVID-19 cases in the United Kingdom has already seriously affected mobility. The visits to retails & recreation stores are now down 15.5% compared to the baseline, which represents a drop of about two points in just five days. Given a fairly similar heath situation in the United Kingdom, Spain and France, it is likely we will also see a decline in mobility in the coming days in these last two countries.
Meanwhile, on the emerging market front, normalization slowly continues, with mobility being back to pre-COVID level only in Taiwan. However, there is still a long road ahead for India, where the risk of new state lockdowns is looming, especially in the populated area of Kerala, and Mexico, where the pandemic is definitively not under control with a total number of cases reaching 730,317, including 76,430 fatalities as of yesterday. Mobility is respectively 32% and 19% below the baseline in India and in Mexico according to the latest update of the COVID-19 Community Mobility Report.
In the below chart, we also see that mobility has been curtailed from mid-August in South Korea, which reflects the implementation of further business restrictions, especially on eateries, franchised coffee chains and other retail stores in the densely populated capital area. However, mobility is expected to increase again in coming weeks as the country has just recently decided not to prolong these measures. What we can learn from the situation in South Korea is that normalization in economic activity won’t be a smooth journey, but will rather consist in moving through stop-and-go with re-introduction, here and there, of localized and sector based restrictions depending on the spread of the virus. It will further increase constraints on economic activity and ultimately put at risk the very fragile recovery that has started since the global lockdown was lifted. We fear that for many countries this situation will translate into a new drop in activity in Q4 this year, notably in France where we are currently staying and where we see a growing number of the population and even the local elite challenging how the government is handling the crisis.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
