Market Overview

13 April 2020

What If the Peak of Infection in Europe Has Already Passed?

The last thing I'd like to do is to give too early hopes to the people who are still sitting at home. But an unbiased assessment of current statistics, rather than any future projections, for some European countries suggests that the dynamics of infection is fading.

Better to knock on wood twice before saying this, but let's look at Germany or Italy regarding new cases of the coronavirus with a simple "technical analysis". Italy was initially the largest viral hotbed until it was overtaken by Spain in the total number of cases. But after March 21, when more than 6,500 new cases were detected in Italy, the graph shows three more new highs, two of which are from April, and the number of new cases on each of these highs is less than on the previous one (See Pic.1).

Pic 1. Daily new cases and death toll in Italy


The picture of new cases in Italy is worth describing as reaching a noticeably lower plateau. As for the death toll there was a deplorable uptrend exactly until March 27, but it was followed by a 16-day clear reversal with only a couple of exceptional days. The latest data from Sunday shows a decrease in the number of deaths by 27% compared to the average over the previous six sadly stable days.

The total number of detected cases of infection in Spain is currently the highest in Europe and exceeds 166,000. The statistics of deaths is not that self-explanatory, but the recent figures are by one third lower than they were at their peak. But the number of newly detected cases decreases over six days out of the last 11 days, it is half as much as it was at the peak and now corresponds to the levels of three weeks ago (See Pic.2).

Pic 2. Daily new cases and death toll in Spain


In Germany the declining picture of the decease is even more highlighted: daily new cases fell step by step for five consecutive days from the level of 5,633 to 2,402 with a lower number of new cases registered only until March 17. The death toll ranged from 129 to 151 over the past weekend after a peak of 333 from April 8 and 258 deaths from April 9 (See Pic.3).

Pic 3. Daily new cases and death toll in Germany


The dynamics are similar now in most other European countries. However, the picture in the United States is much more disappointing with more than 30,000 new cases daily throughout the previous week, which is not far from the maximum level of observations, and these sad numbers fell to 27,421 only on Easter Sunday. The number of deaths has been declining over the last two days only.

"You can't relax. The flattening of the curve last night happened because of what we did yesterday," New York Governor Andrew Cuomo said, referring to the slope of data when plotted on a graph. He added, "it was a sign that social distancing was succeeding", but the prevailing mood in the words of all officials and public health leaders in the United States is that Americans have to resist the impulse to ease social-separation measures at the first glimpse of progress.

Those who are not virologists or officials may ask a different question today: if tracking the spread of the infection in numbers in different countries could be something that a lesson could be taken from in order to have a better understanding of the market processes? Around-the-virus statistics suggest that at least some quarantine measures in European countries, more likely, may be eased two or three weeks earlier than in the United States. If the dynamics turn out to be at least as declining as in the previous couple of weeks, and if there is political will of the governments of the relevant EU countries, then the European economy may begin to open up in the first days of May or at least by the middle of May.

By the way, it may be easier for the authorities of other European countries to decide on a relatively early opening up of their economies if they look more closely at virus distribution statistics from Sweden, where strict quarantine measures with self-isolation at home were not introduced at all and people are following usual hygiene and a two-meter distance on the streets. However, both the new cases and the fatalities curve in Sweden look no uglier than in all other European countries. Although the sequence of peaks is somewhat different, changing the order of the addends does not change the sum. Sweden has not had to pay the price of self-destruction to a significant part of their economy (See Pic.4)

Pic 4. Daily new cases and death toll in Sweden


So, it may not be such a bad idea to end the quarantine soon, especially if there are reasonable grounds for it? Anyway, it's clear that even with all the opportunities to go to work at some point and again to get a full salary, many people who have retained both their jobs and wages will still behave very carefully in consumer terms. They may still rarely visit public places and shopping centres offline. So it is probably too optimistic to expect an "instant coffee" effect in European economic recovery. Nevertheless, earlier first steps are still important. Therefore, some investors can already expect that the capitalisation of a whole group of different big European companies can begin to catch up or even overtake the beginning of the rise in companies that are traded on stock exchanges in the United States.

If the infectious cases curves keep current market expectations in force then the German, French, and Italian stock indexes may have a good chance of going into a leading upward movement within at least ten percent of the possible growth. This could happen even despite a much more modest rescue package from the Eurogroup of €540 billion against a much more extensive package of $2.3 trillion from the US Federal reserve.

The difference in the volumes of bailout packages can be taken into account rather by the foreign exchange market: and the Euro may already become a winner when compared with the US Dollar in the nearest weeks as the Euro is the currency of the region that "printed" and distributed less "helicopter money", which is not covered by any new goods and services. In this case, EUR/USD may again gradually rise from the current 1.09 area to the 1.1150 range, where it has already been recently at the end of March. In the optimistic scenario, it may be able to rise even higher to the 1.13-1.14 area, but only if the general mood on the world stock markets and global indicators of the pandemic remain more or less positive.

If the alternative scenarios of new and big stock markets drop, the difference in the size of the rescue packages will be immediately forgotten, or even vice versa, who gave more support to businesses in their country that currency may be immediately in favour again. The need for US Dollars would then simply make everything else irrelevant. However, up to date, the latter scenario is hardly worth considering as a basic one: markets are still betting more on the idea that the fall that already happened in March included all possible consequences from the current wave of the pandemic and that all the bad things were already in prices at the bottom.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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