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Week In Review: Reverse Cliff Effect. 7 May 2021

Newsletter - Weekly by Amelia Bourdeau

Week In Review:  Reverse Cliff-Effect

US equity indexes were mixed on the week: DJIA 2.7%, S&P 500 1.2%, NASDAQ -1.5% as value stocks outperformed growth/technology stocks. 

 

As vaccination rates increase and economies re-open, we are tracking tourism closely at Exante Data. Here, we look at Mexico, which is seeing an encouraging trend – alternative data show Mexican tourism has strengthened past 2019 levels.  Strategist Martin Lynge Rasmussen, who is tracking the data, says, “Mexico has seen Google search interest in the US – which account for the majority of inbound tourists – move well past pre-pandemic levels. This suggests that Mexican arrivals from the US could have have exceeded 2019 levels (0.8m people per month) and hit or exceeded 1m arrivals starting in March. The picture from Mexican hotel bookings is similarly encouraging: hotel bookings have moved past 2019 levels, though there has been a slight pullback recently. The share of hotel bookings made by foreigners (57% in April and 58% in May so far) has exceed pre-pandemic levels (45-50%).”  We would add that a still encouraging COVID trend (different from rest of Latam) and more positive news around vaccine supply (including Pfizer deliveries from US production sites) should further reduce tail risk around a fresh wave of Covid in Mexico.

 

 

Turning to central banks, here are Senior Advisor Chris Marsh’s notes: “The Bank of England became the latest central bank to taper asset purchases last week when the policy meeting confirmed the ‘pace of… continuing purchases could now be slowed somewhat…. This operational decision should not be interpreted as a change in the stance of monetary policy.’ While the MPC was keen to emphasize this was a technical decision, it represents another slowing in the pace of asset purchases. While this week’s policy decision was taken by an 8-1 margin, outgoing Chief Economist Andrew Haldane distinguished himself by voting to shrink the asset purchase envelope by GBP50bn.”
 
Ahead Next Week: Select economic releases. Next week sees UK and Norway Q1 GDP, a number of CPI releases and current account data for Turkey and Japan.
 
Sunday, May 9: Australia Retail Sales (Apr), Australia NAB Business Confidence (Apr). 
Monday, May 10: Russia – Holiday, Norway CPI (Apr), Japan Household Spending (Mar), China CPI (Apr).
Tuesday, May 11:  Australia Federal Budget, Turkey Current Account (Mar), Hungary CPI (Apr), Germany ZEW Sentiment (May), EZ ZEW Economic Sentiment (May), BoE’s Bailey – Discussion with John Williams (Pres NY Fed) Symposium on LIBOR, Brazil CPI (Apr), NZ Electronic Card Retail Sales (Apr), Japan Foreign Reserves (Apr), Australia Westpac Consumer Sentiment (May).
Wednesday, May 12: Turkey – Holiday. UK GDP (Q1), UK Trade Balance (Mar), Germany CPI (Apr), Norway GDP (Q1), Sweden CPI (Apr), US CPI (Apr), Russia Trade Balance (Mar), Japan Current Account (Mar). 
Thursday, May 13: Norway, Sweden, Singapore, Turkey – Holiday. Central Bank of Mexico Monetary Policy Decision, BoC Gov Macklem speech at Atlantic Canadian Universities.
Friday, May 14: Turkey Holiday, US Retail Sales (Apr), US U of Michigan Consumer Sentiment (May), Korea Trade Balance (Apr). 
 

 

USD Comment

The USD had another strong bout of underperformance. The last four weeks have exhibited USD underperformance beyond what could be explained by moves in the equity market. This week, the gap is about -90bps (chart below, yellow dot)

The DXY Index ranged 91.42-90.20. USD weakened on Friday on the big US payroll miss to the downside for the April result: +266k actual vs approximately +1million expected by the consensus. However, the DXY Index remained above key 90.00 support. EURUSD pushed well above 1.2100 on Friday’s weaker than expected US payroll read. The single currency ended the week at 1.2164. Similarly, GBPUSD, which had been in a tight range all week, rose about a big figure over the course of the day on Friday. GBPUSD high was 1.4004 and the catalyst was the payroll read. USDJPY ranged 109.68-108.49, with the low on Friday. Commodity currencies also strengthened on Friday as the USD weakened. 

 

 

Coronavirus Update: Reverse Cliff-Effect

Global supply of effective vaccine is ramping up, and demand from the US (and the EU) will likely peak in Q2.  The Exante Data team’s analysis suggests that vaccine production in the EU and US will surge during the remainder of the year. Though both regions still have substantial amounts of vaccination left to do, our modeling suggests that the “excess production” during May-December this year could reach 4.3bn doses (chart below). 
 
Therefore, looking into H2, the supply available for the rest of the world will start to increase dramatically. In other words, there will be a reverse cliff-effect. This is especially true since the two most populous countries (China and India) rely on domestic production, leaving a bigger impact for the other, smaller countries. Hence, Latam and Asian economies (ex China and India) should see a dramatic spike in vaccine supply in H2 2021. Once the US opens for exports in earnest, which we expect to happen in June-July, it may be more about the logistics around vaccine administrations, as opposed to the supply constraint, and at that point it may only take 1-2 months to get to doses equivalent to 60% of the population administered – a threshold that has proved important in other economies.

 

Chart: 2021 US and EU Vaccine Production (billion doses) noting excess production/exports

 

Exante Data Happenings & Media

Head of Asia Pacific, Grant Wilson, has a new opinion column out in The Australian Financial Review: New Zealand’s engagement with China is clear-eyed. “The Ardern government has every right to pursue New Zealand’s national interest in engaging with China. Its stance on Five Eyes is smart and principled, and not merely self-serving.”

Adam Tooze gave Exante Data a shout out during his appearance on Bloomberg’s Odd Lots podcast.  We were mentioned as a provider of very-fast number crunching/analytics during the pandemic.  You can listen to the podcast here for Adam’s insights on what an extraordinary year 2020 was. 

We recently initiated tracking of flows related to bunds on our data and analytics platform and have added the Buba balance sheet data.

 

 

How to reach us: 

  • Our Substack is public  – Join us in discussing and debating macroeconomic topics – Subscribe here. 
  • If you are an institution and would like more information on our Macro Strategy, Global Flow Analytics, Exante Data API services, our Digital Currency Series, and/or our Covid research — please reach out to us here

 

 

 

 

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