Since our last post the amount of new Coronavirus-cases has continued to drop throughout countries in Europe as well as in the Americas, with Asia showing sustained low rates of infection.

 

China, with the city of Wuhan being the initial epicentre of the Covid-19 outbreak, has lifted almost all of its quarantine-measures that were put in place 2 months ago.

Furthermore, it is expected that Wuhan will fully resume its rail, flight and freight operations by the end of April, according to the vice mayor of Wuhan. 

China's Wuhan to fully resume rail, flight and freight ops by end-April: vice mayor

"The vice mayor of Wuhan, epicentre of the coronavirus outbreak in China, said on Wednesday the city aimed to fully resume rail, flight and freight operations by the end of April after a more than two-month lockdown was lifted earlier this month.

Speaking at a press conference, Liu Ziqing also said taxi services would restart in an orderly manner and that operations at ports in the city, which lies on the Yangtze river, would be restored by the end of this month."

Lately we have also been seeing better than expected macroeconomic data from China fanning optimism for a V-shaped recovery. 

Exports from China dropped 6.6 percent year-on-year to USD 185.15 billion in March 2020, compared with market estimates of a 14.0 percent fall and after a 17.2 percent plunge in January-February combined, amid the coronavirus pandemic.

Imports to China declined 0.9 percent year-on-year to USD 165.25 billion in March 2020, compared with market expectations of a 9.5 percent drop and after a 4 percent decline in January-February combined, amid signs of improving domestic demand after lockdown restrictions were gradually lifted.

Data from China suggests that a swift recovery in the underlying economy is to be expected in other countries as soon as the virus is brought under control and rates of infection are steadily dropping.

In Europe discussions have surfaced on coordinated guidelines in lifting quarantine-measures as a response to plateauing and declining rates of daily Covid - 19 infections. Austria also became the first European nation to ease quarantine-measures put in place. 

Europe Is Planning How to Get Back to Work After Subduing Virus
https://www.bloomberg.com/news/articles/2020-04-14/europe-s-plans-for-going-back-to-work-are-starting-to-take-shape

Austria Tests Easing Lockdown With Some Stores Opening Today
https://www.bloomberg.com/news/articles/2020-04-14/austria-tests-easing-lockdown-with-some-stores-reopening-tuesday

 

 

 

In our previous post we also noted exceptions to these daily trends with the United Kingdom and Sweden being outliers, and currently showing signs of plateauing in their rates of daily infections. Suprisingly, Russia has started to show signs of an accelerated trajectory in novel infections. 

 

In North America, some U.S. states are expected to begin announcing timetables for lifting restrictions. Last Thursday, Trump unveiled guidelines for a staggered, three-stage process by states to lift restrictions on business and social life to curb the pandemic.

Daily new cases have been leveling off in the U.S.

Canada recently extended a closure between the Canadian and the U.S. border for an additional 30 days, despite plateauing rates.

Coronavirus: What's happening in Canada and around the world on Sunday
https://www.cbc.ca/news/canada/coronavirus-covid19-canada-world-1.5537588

Interestingly, Mexico has shown an increase in the amount of daily new cases, with believed to be a temporary spike in an otherwise plateauing trajectory.

Markets have reacted favourably to the declining rates of infections and guidance by world leaders in coordinated lifts of restrictive quarantine-measures. The SP500 and the NASDAQ100 have continually risen since the bottom in mid-March, and are 10-15% off their record highs in February.

During the week, all major volatility indices dropped, and the ViX finally breaching below 40. VVIX has also dropped during the week, from 138.65 to 127.15 suggesting markets pricing in the positive developments sorrounding the Coronavirus-pandemic.

Currently earnings season is in full-swing and we believe that market fears surrounding dropped earnings will be overshadowed by the positive news of easing quarantine-restrictions and releases of improved fundamental data at the end of the month or early May from China. We expect high intraday volatility to ensue, with some sectors to be particularly vulnerable, such as oil & gas to weigh on indices. 

Therefore, we extend our view to be overweight on equities and long emerging market currencies. We find the BRL/USD pair to show particular potential as a long-trade as it is undervalued relative to other emerging market pairs.