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Week ahead - GDP, CPI & Unemployment

This week ahead, we have a plethora of data coming out across the world dictating the strength of "main street" and its contribution to the Coronavirus Pandemic's global recovery.

With that said, the Coronavirus continues to present itself as a factor pulling back the global economy's growth. With financial markers such as Brent Crude and WTI prices returning to pre-pandemic levels, evidence of life post Coronavirus slowing down is coming into sight. However, as shown, even the countries who handled the Coronavirus well indicate that we still have to grapple with the strengthening strains.

Case in point – I am currently writing this at home, as New Zealand, renowned for their Coronavirus Response, has placed their largest city, Auckland, back into a level 3 lockdown following three community transmission cases from the stronger UK Strain.

However, as we all know, financial markets do not sleep. Here is your week ahead.

Sunday, 14th Feb – Japan's GDP Figures Quarter over Quarter

Japan's GDP Figures

Japan has not had the best success regarding the fight against the Coronavirus. Initially praised for their no lockdown strategy, dependent on the mask-wearing, cleanliness culture Japanese citizens exhibit. Three waves of the Coronavirus later, each larger than the previous, and the Japanese Government depend on the vaccine to help save their citizens from further infections.

However, the Japanese economy is showing its strength, and analysts predict they may come out of the pandemic stronger than expected. Unemployment has stayed at a modest 2.9% due to Bank of Japan's corporate lending scheme, alongside bankruptcies falling by around 20% from a year earlier in recent months. Analysts predict GDP growth of 10.1% in the last quarter of 2020.

Tuesday. 16th Feb – Eurozone's GDP Quarter over Quarter and Year over Year

Last year today, the Coronavirus had started to hit the shores of many countries. A couple of months later, most of the Eurozone would have concluded that their lockdowns were adequate in eliminating most of the virus and that citizens may freely roam around Europe for the summer.

That decision would cost them many more lives and setback the road to recovery.

It is now 2021, and we're approaching the same period in which these decisions were made. However, now, Europe has been slowly rolling out the Coronavirus vaccine to citizens. However, the President of the European Commission, Ursula von der Leyen, has stated that the EU was late to rollout and authorize Coronavirus vaccines and are "still not where we want to be." However, a better than expected GDP print may mean stronger Euro, which may be detrimental to exports.

Wednesday, 17th Feb – United Kingdom's CPI Figures

With the United Kingdom slowly getting a grasp on the Coronavirus with the help of a vaccine, the new strain provides new challenges as British scientists state the U.K Coronavirus strain is "likely" 30% to 70% deadlier than the original. With that said. Boris Johnson is Optimistic that the Coronavirus Lockdown can be eased soon – however, as history shows, lockdown is only effective if there has not been community transmission for weeks. Analysts predict CPI to drop slightly to 0.5% from 0.6% year over year.

Wednesday, 17th Feb – U.S Retail Sales

Like the United Kingdom, the United States has been given a tailwind in the form of a vaccine. However, similar to the United Kingdom and Europe, the vaccine's distribution infrastructure has been criticized. With the U.S having many months to prepare for the eventuality of a vaccine. Cases are down from their all-time highs, although still above 100,000 for their daily average. Analysts predict U.S Retail Sales to rise to 0.7% this week ahead, up from -0.7% a month before.

Thursday, 18th & Friday, 19th Feb – Australia's Unemployment Rate for Jan and Retail Sales Month over Month.

Australia has recovered from a devastating 2nd wave by introducing a drastic lockdown near the middle of 2020. However, there have been many flare-ups around Australia, with one in Sydney and one currently in Melbourne, which has caused the local Government to implement a short lockdown. However, there has been evidence over the past couple of months of Australians using the money they have saved during the past lockdowns and spending it. With that said, analysts predict a slight fall in the unemployment rate to 6.5% from 6.6 in January, with retail sales expected to bounce to 2% from a negative 4.1%.

Busy week ahead. Trade safe, and stay safe.

Elimination vs Suppression – Effects on the Market and Society

Elimination vs. suppression – What's the difference?

A dance club in Wuhan, China after stamping out the virus.

In short, Elimination and Suppression can be categorized by "Hard and Fast" and "Low and Slow." Elimination is akin to ripping the band-aid off, in which one hopes the intense pain is short and quick and can be over and done with. Suppression is akin to slowly ripping off the band-aid in hopes of spreading out the problem over time.

The goal of the Elimination strategy is to enact measures to eliminate all community transmission in society. Unsurprisingly, this would require stringent community movement restrictions, consistent contact tracing, and effective quarantine measures for the infected.

Suppression attempts to balance economic damage and the spread of the Virus. Suppression is almost the opposite of Elimination, in which measures are enacted, which would allow businesses to operate as much as possible while minimizing the spread of the Virus.

New Zealand officially was the only country that perused a full elimination strategy. However, we will include countries that implemented a significant and early lockdown as an attempt to "eliminate the virus." We will try to see its effect on the local economy, the relative stock market, and society. For the sake of this piece's length, we will not include small islands and populations who eliminated the Virus as a function of their size.

New Zealand

The poster child for how all countries should have handled the Coronavirus, New Zealand, led by Jacinda Ardern, was the only country which directly opted for a full Elimination strategy. The Director-General Ashley Bloomfield and Prime Minister Jacinda Ardern tend to get all the love regarding New Zealand's success. Regarding the Coronavirus. However, one doctor initially formulated New Zealand's elimination strategy – Michael Baker, a Public Health expert at the University of Otago, was the doctor who initially drafted the elimination strategy. He stated we should "throw everything at the pandemic at the start." His plan got criticism, with "some likened it to using a sledgehammer to kill a flea," he says.

The government ended up going with his plan due to his track record. On the March 25th, New Zealand had no deaths and 205 Coronavirus cases, when Prime Minister Jacinda Ardern, over a couple of days, closed the borders and ordered everyone to confine themselves at home, only allowed to leave their homes for essential reasons – buying food, going to the supermarket and if you were an "essential worker" (Doctors, Supermarket workers, Nurses, etc.)

Everyone was concerned about the disastrous Economic calamity that such a strategy would bring. Estimates by the government were around a 24% fall in GDP year over year – however, September figures showed a 12.2% contraction. There was a second flare-up of community transmission cases around August – however, the government was more or less expecting a second wave of community transmission with no links to any clusters. Again, they went hard and fast and locked down Auckland for a couple of weeks to stamp out the Virus. Currently, cases are controlled, with many off-cases coming from individuals entering New Zealand.

In New Zealand, life is back to a relatively normal, with most businesses that lasted the lockdown back in full trade with no more social distancing mandates to follow. Sports are back on, with large crowds. Economic recovery is fully underway, with voters voting in Jacinda Ardern for a second term in hopes that her leadership during the peak of the Coronavirus Pandemic can follow through in the economic recovery. The NZX 50 is positive year to date, around 6.83%

China

If New Zealand is the poster child for how all countries should have handled the Coronavirus, China is the older child everyone forgot about but is equally successful.

With the Coronavirus originating from Wuhan, China, the government quickly controlled and stopped the Virus from spreading to other places in China. They altogether stopped the movement of 60 million people in and out of Wuhan and 15 other cities in the Hubei provinces. However, soon after, just like New Zealand, the government implemented a lockdown in most cities, only allowing citizens to leave for essential supplies and food. China was ahead of the rest of the world in implementing measures to curb the Coronavirus. On March 25th, just as New Zealand started to enter their first lockdown, China was a couple of weeks into their lockdown.

China has received some flack for allegedly withholding information from the WHO and not allowing scientists from other countries access to crucial information regarding the Coronavirus and its makeup. However, their shutdown of the economy has otherwise been as effective as New Zealand, with stated daily figures dropping shortly after implementing their lockdown.

Figures released yesterday show China's GDP growth rate at 4.9% - slightly off the markets' estimates at 5.5% growth. However, this is nevertheless close to pre-Coronavirus GDP growth. Morgan Stanley cites "very strong exports and the gradual improvements in domestic consumption." The Shanghai Composite is positive this year, up 9.8%.

Vietnam

Vietnam (like Taiwan, which we will talk about later) has an advantage over New Zealand – they were prepared for a pandemic. During the SARS outbreak in 2003, Vietnam was recognized by the World Health Organization as the first country to be SARS free. In the following months, Vietnam ramped up interventions and made sure they were prepared for a future pandemic.

On April 1st, Vietnam entered a nationwide lockdown for two weeks, with extensions to 3 weeks in a couple of provinces. However, even before the lockdown, they were implementing restrictions to travel in and out of the country and limit gatherings and businesses in the country.
Vietnams GDP growth rate dropped to 0.39% during the peak of the lockdowns. However, it recovered back to around 2.7% once they opened. Vietnam's stock market, the Ho Chi Minh Stock Index (HOSE, HSE), is still down for the year, by around 13%.

What is important to note with the elimination cases is that the respective countries' governments re-opened their economies after there were no traces of community transmission. This is the crucial factor showing the strength of the elimination method, as no community transmission gives the societies the confidence for businesses and the government to open businesses with little restrictions. However, what happens if governments try to implement a "business-lite" approach, trying to balance the daily case count and economic health?

United Kingdom

Five weeks after the first Coronavirus case in New Zealand, UK's Prime Minister Boris John stated 'It is very important that people consider they should, as far as possible, go about business as usual". Nearly 300 deaths later, alongside himself contracting the Virus, he decided to put the country in a lockdown. However, the lockdown was relatively non-restrictive, initially allowing individuals to leave and enter the country.

After the lockdown, Boris focused on getting the economy back on track, providing incentives for people to eat at restaurants by providing subsidies alongside upholding job wage schemes. However, they did not consider the crucial factor that made Elimination successful – there was no community transmission coming out of the lockdown. When the UK exited lockdown restrictions, daily new Coronavirus cases were around 500-800 a day, nowhere near 0.

Now, the UK is paying the ultimate price for complacency. Daily cases are almost triple the initial wave. UK Citizens are again imposed to tiered restrictions relating to the region they live in – however, the UK has still not imposed a strict lockdown, even on the harshest tier 3 level. Unlike New Zealand, where they imposed University and Schools to close on their 2nd most severe level, the UK states that Schools and Universities to remain open even under tier 3. There have been around 43,700 deaths in the UK due to the Coronavirus. The FTSE is down 22% year to date.

The United States and Brazil

Surprisingly, the Coronavirus situation in the United States can be explained quite easily. President Donald Trump played down the Coronavirus. Once it reached the United States, he refused to enforce proper measures such as social distancing and masks. The Coronavirus started to spread and spread and spread. It has not stopped spreading. If the US Coronavirus were a CFD, it would be up 47% this year. United States' total cases are around 8.2 Million, with a death toll of 220,000. They have a population of approximately 329 Million.

Similarly, Balsonaro played down the Virus, reacting to Brazil's death toll at what point, stating, "So what?" – "I'm sorry. What do you want me to do?". Brazil's total cases are around 5.25 Million, with a death toll of approximately 154,000, of a population of roughly 210 Million.

Both Presidents have contracted the Coronavirus.

There have been some honorable mentions with nations initially seeing some success in suppressing the Virus, ultimately failing and seeing their cases spike.

Australia and Japan

Initially, critics of New Zealand's harsh lockdown pointed to New Zealand's next-door neighbor, Australia. In the early stages of the New Zealand lockdown, Australia achieved similar and sometimes even better daily reductions in cases without having to lock down its economy fully. However, near June, it became clear that the strategy was failing. Alongside accusations that outsourced security guards were sleeping with quarantined citizens, a second wave hit the state of Victoria like a rock. To this day, some citizens in Melbourne have been in lockdown for seven months.

Similarly, with Japan, the nation was admired for keeping their daily cases relatively low while many citizens continued with their daily lives. Many analysts cited Japan's citizens having good hygiene habits, with many citizens wearing masks in everyday life. However, just like Australia, the lack of Elimination in community transmission led to cases spiking near June, ultimately leading to a second wave.

One lockdown is better than two

One can deduce that one lockdown is better for the economy than two. In hindsight, it is clear that the elimination strategy is more effective than the suppression strategy. If every country used the elimination strategy, chances are we would have been on the road to recovery, travel would have been reinstated, and most importantly, fewer lives would have been lost. The question becomes, why were New Zealand and China the only ones who implemented an Elimination Strategy? It would be reasonable to assume there are brilliant experts in every country, so why were experts in China and New Zealand the only ones to figure out that it was the best strategy forward? Economy > Human lives?

Do you rip the band-aid off, or do you slowly pull it off?

Australian dollar to 75c?

The Australian Dollar has seen a strong bull rally - up 12% from its March lows. Now bulls are edging for the currency to push higher.

AUD/USD slowly creeping up to that 75c mark, not seen since May 2018

A possible push of the Australian dollar to 75c against the U.S dollar is a level not seen since May 2018. During that period where it first dipped below 75c, there were many retests in the following months before we finally saw a sold push below the 75c mark. This historical dynamic may require bulls to have strong momentum if they want to pass that 75c mark.

The Australian Dollar is noted for being a commodity currency – that is, the value of their currency against other currencies is mainly correlated from the price of commodities they export. You can see this correlation with the price of Iron and Copper.

That 12% push from its March low has been due to its largest export partner, China, seeing their demand for Australian resources sour amongst the Coronavirus pandemic and their souring relationship regarding barley and wine exports.

Australian Dollar underpinned by Commodity Demand

When put side by side, the correlation between Copper and the Australian Dollar is clearly visible.

Australia’s Minister for Resources, Keith Pitt told the Financial Times in a recent interview that the mining and energy sectors were underpinning the domestic economy, which has been battered by a second wave of the Coronavirus that has forced many businesses in Melbourne to shut their doors for another couple of weeks. He also states that “62% of China’s Iron ore imports came from Australia in 2019-2020,” reiterating that commodity correlation.

However, more institutions are bullish on the Australian Dollar. Notably. Commonwealth Bank of Australia stated that “the recent rally in some commodity prices seem unstoppable,” hinting at the idea that commodity prices are an essential driver of the Australian Dollar.

It also helps that over the past couple of weeks; there has been a trend of de-dollarisation amongst traders and investors. This may be due to a mix of factors, including a 34% rally in Gold, unprecedented fiscal stimulus and quantitative easing, and a strong rally in U.S equities forcing investors and traders out of the U.S dollar.

If we continue to see strong demand for commodities such as Copper and Iron, we may see both the Australian Dollar and the prices for those rally in tandem together.

Speaking of Copper – a senior analyst here at BlackBull Markets, Anish Lal did an excellent technical overview video on whether copper will hit 80c – You can watch it here.

Safe trading!

UK CPI, Japan GDP - Week ahead

There will be a week ahead post where the data being released will revolve around how well the economy chugging along, and analysts will argue whether a country has reached its peak or whether the NASDAQ is undervalued at 40 times earnings. However, this week isn't that week. Coronavirus continues to be the primary context around headlines, showing that we are still in the pandemic's neck. I have a feeling that it will be like this until real progress regarding a vaccine is achieved. Here is your week ahead.

Sunday, August 16th – GDP of Japan, Quarter over Quarter

Japan continues to post significant Coronavirus figures, with over 1,200 Saturday, topping 1,000 for the third straight day with cluster outbreaks as summer holidays begin. Initially praised for their laissez-faire regarding their quarantine strategy, i.e., has come back to bite them. However, unlike New Zealand, where they essentially forced everyone back into their homes at the slight hint of a potential outbreak, Japan continues to allow its residents outside. For example, they placed restrictions on the maximum number of spectators, concerts, professional sports, and other events – to 5,000. This has made analysts wary of Japan, considering they had low GDP growth before the Coronavirus pandemic. Analysts predict a contraction of 7.3% last quarter, at an annualized pace of 26%. A 7.3% contraction this week ahead would mark the largest GDP decline post-world war.

Tuesday, August 18th – RBA Meeting minutes, report

Like Japan, Australia was praised for its laissez-faire approach resulting in early positive results in Coronavirus cases. However, also similar to Japan, that approach has come back to bite them. Most notably in the state of Victoria, in which the Coronavirus has run rampant. Although the rate of daily increase in cases has slowed down due to the Premiere of Victoria, forcing a mandatory quarantine to all citizens, they are still recording triple-digit cases regularly. They recorded 279 new cases today, with 16 deaths. However, this is an improvement from 2 weeks ago, when they were recording jumps from 200 to 700 new cases in a day. Australia's RBA before the "second wave," took a confident approach that Australia would be capable of pulling out of the pandemic similar to New Zealand with a lower economic cost, and their monetary policy showed that. However, due to the second wave, the report being released will likely be extremely dovish and hint and further rate cuts in the future.

Wednesday, August 19th – UK CPI figures

The UK has seen its Coronavirus curve slowly rise, and that has made government officials anxious. They have recorded over 1,077 new Coronavirus cases in the pasty day, which is slightly under their 1,097 seven-day moving average. However, analysts predict CPI a small change from a 0.6% increase in the CPI to a 0.7% increase this week ahead. If the increase is larger than expected, we should see the GBP strengthen against its peers.

Wednesday, August 19th – Canada CPI Year over Year

Canada was one of the only nations to not impose a strict lockdown for its citizens and come out flattening the curve. Yesterday, Canada confirmed 237 new cases. While not entirely eliminated, the country has not experienced breakouts similar to that of Japan and Australia. Previously, the CPI was up 0.7% compared to a year ago, with analysts predicting a CPI increase of 0.2% this week ahead. With such wild variations, it is yet to be seen what the CPI is going to be. However, a rise in CPI signals a bullish stance in the Canadian dollar, with a hawkish central bank.

Thursday, August 20th – USA FOMC Minutes

The United States is not close to flattening the curve.

A staggering number: 5,565,114 Coronavirus cases, 173,080 deaths – a 6% mortality rate. The United States has not been able to flatten the curve. With an election coming up, President Donald Trump has tried to re-open the economy to boost his chances come election time. However, this has not worked. His selflessness has cost many people their lives. Usually, a market-moving event, TD Securities analysts noted that "at the July FOMC meeting, the Committee did not imitate any new policy actions, and that changes to the statement were minor." Combining this with August being a month were a lot of traders and managers take leave for their summer holidays, we should expect this to be relatively non-market moving.

As stated above, this month tends to be quite slow due to many traders, investors, and asset managers taking leave for the summer holidays. Therefore, the market should be relatively muted at this time. This may be an excellent opportunity for traders and investors to backtest their strategy or even paper trade to practice for the coming months. Many elections are coming, such as the United States and New Zealand general elections, which will cause significant market moves.

Trade safe! Have a good week ahead.

NASDAQ down 2% on Coronavirus fears

Tech and consumer equities lead the charge downwards as fears that the recovery has stalled in the US emerges. The NASDAQ is down 2.33% today, with the SP500 and Dow Jones down 0.66% and 0.7%. Priced-to-perfection tech stocks, even with better than expected earnings was not able to defend the lofty prices from the risk-off rush out of the market.

Fears that the US economy has stalled comes on the back of an unexpected rise in Jobless claims in the past week. Unemployment claims rose by an adjusted 109,000 to 1.4 Million, with analysts expecting 1.3 Million. However, unemployment in the US has decreased in the past couple of weeks as workers are rehired as the economy opens. However, as the US continues to grapple with the Coronavirus, many states have slowed reopening and therefore slowed rehiring.

The potential stall of the economy comes at an unwanted time, as the $2 Trillion stimulus package is nearing the end of its course. Currently, Congress is trying to negotiate another trillion-dollar package as the Coronavirus continues to ravages the United States. However, some people believe that the $600 weekly government payment has disincentivized people to go back to work, skewing the numbers. University of Michigan Labor economist Don Grimes stated that “the $600 additional weekly payment may have encouraged people to stay on unemployment..”

Market performance pricing in Coronavirus Risk

It is interesting to note the performance of specific markets around the world:

NASDAQ in Blue, EU50 in Red, NZ50 in Orange, AUD200 in Teal, KOSPI in Green

All major American, Australian, and European Indexes are down due to Coronavirus concerns – While the NZX 50 and the KOSPI, New Zealand’s and Korea’s major stock indexes respectively, are up for the week. Furthermore, It may be interpreted as the cogs in the markets are turning back to normal, slowly pricing in risk correctly. Furthermore, we can also see this in the Oil and Gold spot market, with Gold rallying admits Oil ranging, as the Oil demand fluctuates around the world. However, the Dollar index declined with treasuries rising, showing that the initial rush to hoard the dollar is slowly evaporating. Generally, this is a good thing for investors as it means rationality in the markets is gradually coming back.

Anish Lal did some great technical analysis on Gold - Will it reach $5,000?

Trade safe!

PBoC, Inflation and Jobless Claims - Week ahead

The markets continue to grapple with the immediate effects of the Coronavirus. The second wave in pockets of the world has forced cities to take active measures to control the virus. Melbourne, Australia has gone into a secondary lockdown while Florida and Los Angeles see cases surge, with the Mayor of Los Angeles stating that the city is “on the brink” and a Democratic representative from Florida reports the outbreak is “totally out of control.” Here is your week ahead

Monday, 20 July – Peoples Bank of China Interest Rate decision

PBoC's Interest Rate

China’s Central Bank, the Peoples Bank of China has been wary of cutting interest rates, even during the peak of the pandemic. Ma Jun, a PBOC adviser, stated in early April, “The PBOC doesn’t use its bullets all at once. China has plenty of room in monetary policy.” The PBOC has kept interest rates at 3.85%, after dropping it 30 basis points from 4.05% in April. However, forecasts and estimates expect the PBoC to keep rates as is at 3.85% this week ahead.

Tuesday, 21 July – Inflation rate YoY Bank of Japan

With 660 new cases of the Coronavirus yesterday, Japan has struggled to keep ahead of the virus after the world praised it for its lighter approach to restrictions. However, that approach, as seen similarly from Australia, has not bode well for the country. Japan has seen triple-digit daily increases for the whole month of July. This has caused consumption and spending to decrease dramatically. Analysts predict an inflation rate of 0.1%; however, there is a high chance that this may be pushed to the downside, which may put downward pressure on the JPY.

 Tuesday, 21 July – Reserve Bank of Australia minutes

Australia is continuing to grapple with the effects of the Coronavirus, with Melbourne being put back into lockdown and the state of Victoria imposing mandatory mask restrictions. With RBA minutes earlier in the year having a tone of optimism, likely, that tone will not continue here. The second lockdown is a massive blow to the country, socially and economically. The Trans-Tasman bubble between New Zealand and Australia has been delayed, with economic activity in the state of Victoria plummeting. We may see Aussie weakness against its New Zealand counterpart as Australia reels back their reopening.

 Thursday 21st July – Canada Consumer Price Index (CPI)

Canada continues to post double-digit daily Coronavirus cases as they, too, implemented a looser lockdown restriction like Japan and Australia.  We saw a drop in the CPI from March to April as citizens decreased their spending. We saw a slight increase in the Month of May, however, analysts expect to stabilize around 137 for the month of June.

Thursday 23 July, US Initial Jobless Claims

US Initial Jobless claims. Source: Bloomberg

With Initial Jobless Claims posting the smallest decline since March last week, the US jobs market is showing a slight rebound. However, we are all aware of the current situation with the Coronavirus cases in the US. Florida and Los Angeles are posting daily record numbers every week, while President Donald Trump focuses on reopening the economy and the US-China trade deals. I expect this number to slowly creep up as the full effects the second wave of the Coronavirus becomes evident. Analysts predict Jobless Claims to drop to 1.29m from 1.3m previously.

We have seen this mindset in the market, which discounts negative news and rallies on positive news. This is partially due to liquidity propping up many markets. Investors and traders must take this into account when placing trades.

Trade safe!

Melbourne, Australia re-enters a six-week lock down

Melbourne, a major city in Victoria, Australia, has forced residents to re enter a six-week lockdown. This is after the major city reported 191 new cases of the novel Coronavirus, with double-digit case growth in the past couple of days.

Melbourne's cases have reached "unacceptable" levels, prompting lockdown

Daniel Andrews, Premier for Victoria, stated that the new restrictions were due to the “unacceptably” high number of cases. Furthermore, he also stated that “it is simply impossible, with case rates at these levels to have enough contract tracing staff to have enough physical resources to suppress and contain the virus without taking significant steps” Furthermore, Chief Health Officer Brett Sutton stated that there was a “unanimous view” on the increase in restrictions in Melbourne. Victoria has also imposed to close off the NSW-Victoria border, with over 1,000 soldiers and police officers making their way to reinforce the border.

It is stated that a partial reason to why there has been a resurgence of cases in the state of Victoria and Melbourne in particular, is due to their opting of contracting security firms to regulate the quarantine. In comparison, this is opposed to enlisting the police force like many states in Australia and countries around the world. There have allegedly been security lapses with security guards sleeping with guests hotel guests who were staying due to a mandatory quarantine after arrival into the country.

Melbourne's second lockdown may be detrimental to Australia's recovery

Melbourne and its second lockdown comes back to bite critics who saw New Zealand’s lockdown overly strict in comparison to Australia, touting that Australia has been achieving similar results with fewer restrictions on their citizens. ACT party leader, David Seymour in April that Australians are being “treated like adults” by their Government and are achieving “better results.” Furthermore, he stated that “Australia appears to have its cake and eating it too, as it achieves better COVID-19 health outcomes than New Zealand with fewer restrictions on economic activity.”

Coronavirus Cases in Australia and New Zealand. Australia in red on the right axis, New Zealand in blue on the left axis.

However, as time has shown, New Zealand’s stricter approach has paid better dividends even with the higher initial economic cost. IBISWorld has stated that “the overall recovery of the Australian economy is expected to be significantly hindered by the second lockdown.” The state of Victoria contributed 24% of Australia’s GDP in 2019. The ASX and AUD are down 0.89% and 0.14% on the lockdown news, respectively.

ASX and AUD down in the past two days

We can see that the Coronavirus continues to grapple the world economically and politically. Brazilian President Jair Bolsonaro saw the Coronavirus as the “little flu” and frowned upon social distancing measures, stating, “we’ll all die one day.” He has now tested positive for the Coronavirus. He would be the second head of Government to test positive for the novel Coronavirus, with Prime Minister Boris Johnson having contracted Coronavirus earlier this year. Furthermore, with no formal Coronavirus plan, President Donald Trump administration grappled with re-opening the US economy amongst an election in September. Jacdina Adern has faced major criticism over lapses in security regarding mandatory quarantine and increases in taxes amongst significant government borrowings.

A vaccine for the Coronavirus would be required to provide stability in the economy, as countries with relatively successful Coronavirus plans are still struggling with the effects and aftermath of the virus.

US Non-Farm Payroll posts 4.8 Million Jobs in June.

United States Non-Farm Payroll posts 4.8 Million jobs in June, beating analysts' expectations of a 3 million gain. The unemployment rate also fell to 11.1% in June, forecasted at 12.5%.

Non-Farm Payroll

However, permanent job losses spike

2.1 million of the 4.8 million new jobs were created in the leisure and hospitality sector. However, permanent job losses jumped to 588,000 to 2.8 Million permanent job losses. This is the second-worst month in 20 years for permanent job losses, losing to January 2009 during the Global Financial Crisis.

This is on the back of the United States, topping 2.74 million total Coronavirus cases. Daily new cases increased to 52,600 from 47,000 yesterday. However, President Donald Trump stated that the employment numbers prove that the economy is "roaring back." Donald Trump predicts a resurgence before the November election, with no reference to the state of the Coronavirus in the United States.

The NASDAQ reached a record high, ending at 10,367, a 0.54% gain for the day. Other major indices edge higher, with the SP500 and the Dow Jones posting 0.12% and 0.41% gains, respectively. Interestingly to note, Gold also ended higher with futures ending at $1,788. This may be attributable to investors and traders understanding that the Coronavirus risks, especially in the United States, are still a big threat to the recovery of the economy. This is alongside major fiscal and monetary policies that have helped provide liquidity and elevating equity prices.

NASDAQ in Blue, SPX in Orange, Dow Jones in Teal

Equity markets post record highs and macro-environment tenses

Equity markets, specifically in the United States, have been resilient during an extreme macro environment. Inequality protests dividing the nation, political tensions rising domestically and internationally with the election approaching amongst China's power grab all amidst a pandemic which caused the greatest jobs lost in United States history. With non-farm payroll posting better than expected results over the past two months, a sense of progression in the road of recovery may cloud investors and trader's judgment. Furthermore, with the FED providing virtually unlimited support, it would be reasonable to assume that participation in this market would be met with accommodative conditions.

However, the Coronavirus is still preventing many states from opening. New York is still now allowing in-person dining –from a state that has flattened the Coronavirus curve through the relatively strict lock down. Texas just imposed a mandatory face mask requirement. Florida records its highest death rate. Permanent jobs lost in the United States are still increasing. Investors and traders need to tread carefully before investing their hard-earned dollars into these propped-up markets.

Trade safe.

Invest in the macro-environment, or the business?

The AUS 200 and the NZX 50 are down 12.62% and 3.16% year to date. This is in comparison to the NASDAQ, which is currently up 10.08% for the year. A stark contrast is considering that Australia and New Zealand have had a better Coronavirus response than the United States.

AUS 200 In Blue, NZX 50 in Red, NASDAQ in Orange

New Zealand has been touted as having one of the best initial reactions to the Coronavirus. However, critics in the early stages of the loosening of lockdown compared New Zealand to Australia as having similar results but with fewer restrictions. But as citizens started experiencing freedom, it became evident which country had the upper hand.

Coronavirus impacts even the strictest of countries

When asked if he shared the same view of Qantas CEO Alan Joyce on low overseas travel for at least 12 months, Australian Prime Minister Scott Morison stated that it was "not unreasonable for Alan Joyce to form the view he has." The Australian government hinting that they will not reopen borders until the middle of 2021. This is on the back of Australia, posting the most significant one day rise in Coronavirus cases in two months. Australia has recently experienced a surge in Coronavirus cases as people resume their daily lives.

However, New Zealand has not had a perfect ride either. The government has been getting criticism for releasing quarantine patients without checking them for Coronavirus.

With both countries' shortfalls, they both have performed relatively well in the crisis, sacrificing the Economy for their citizens' health. Coronavirus fatality rates for Australia and New Zealand have been meager at 1.38% and 1.88%

If we compare this to the United States, the fatality rate is 5.1% and over 2.47 Million Coronavirus cases. With the White House having no clear plan with the Coronavirus and a President game theorizing his way to a successful election in a couple of months, this has put pressure on states to reopen. This is on the back of daily cases surging.

Company or Country?

However, the NASDAQ is outperforming both the ASX 200 and the NZX 50 despite these conditions. This begs the question, should we be investing in the macro picture, or should we be investing in companies? This is a tough call, as companies such as Facebook and Google have a non-cyclical business with a fortress-like balance sheet, while companies in A2 Milk and After pay in Australia have better macroeconomic conditions. There may be value in preparing for America's second wave and looking at equities and investment down under. The divergence may become evident in the possibility that America goes into lockdown again.

This also may be an opportunity to enter a long position in the New Zealand and the Australian dollar on higher demand for the currencies as investment rush into the NZ and Australian markets.

Markets are on edge

Have you ever woken up in the middle of the night after hearing a noise? You lie in bed with your ears listening in, but the sound is gone. However, you can't sleep because you don't know whether if/when that noise will come back, or whether its a threat. So you kind of just lie there, waiting. That is what the market is feeling right now. They are on edge. The question becomes, what do we do next? Do we try and sleep and ignore the threat that may not exist? Or get up and assess it head-on? It is not just the equities market that has been on edge; it's everything alongside with it.

Earlier, senior adviser to President Trump, Peter Navarro, spurred confusion when he replied, "It's over" to a question related to US-China trade negotiations. Markets everywhere acted with ferocity. The SP500, Oil, AUD/USD, and even Bitcoin reacted negatively on the news. However, just think about that for a second – two words were able for investors and traders to go, "alright, I'm out." In regular times, investors and traders would regard valuations as overstretched (as I'm writing this, NASDAQ futures hit their all-time high.) But now? In the middle of a pandemic? It's like everyone has their finger hovering over the sell button, scared of what the future has for their investments.

WTI on a 30 minute time frame
SP500 on a 30 minute time frame
AUD/USD on a 30 minute time frame

The Market showing opposite signs in Gold

If we put on our econ/finance 101 hats on, equities are regarded as an anticipatory asset. The market anticipates future earnings and discount them, giving the stock price, however, as this graph from Bloomberg shows.

Stock price to Expected Earnings

Expected earnings do not reflect what current prices show. Therefore it's justified that markets are on edge. As Didier Saint-Georges, a member of the investment committee at strategist at Carmignac Gestionput it, "Markets react to the lack of medium-term visibility by shortening their investment horizon - This explains the focus on the immediate recovery, and then catch up by cyclical stocks, but also the fragility of markets."

The oddity here is Gold:

Gold on a 30 minute time frame

Navarro's comments saw a sell-off in Gold – which is a contrarian move relative to how indices, oil, and AUD/USD moved.  This could be due to investors and traders exiting their gold positions to enter riskier assets such as equities.

Traders need to be careful and keep an eye on the news, as the markets will react to any news that may change the fairytail outlook that it is currently pricing in. With investors, with a long enough time horizon, averaging down may be the best balance between being in the markets and getting the best price for your favorite equities.