US Macro: Reopening still on track for now, despite localised surges in cases – While national covid-19 case numbers in the US remain stable at 20,000-22,000 per day on average, this aggregate disguises significant differences between coastal states – which have been much more cautious in reopening their economies – and interior and southern states, where reopening has proceeded more swiftly and with fewer conditions needing to be met. For instance, New York – which experienced by far the worst outbreak in the US – is only just now starting to reopen, and its daily case numbers have declined to 600-800 in recent days, from a peak of almost 12,000 per day in mid-April. In contrast, case numbers in Texas have almost doubled, from a c.1000 daily pace when reopening began in early May, to over 2000 in recent days. Increased testing explains at least part of the rise in official case numbers for most states. For instance, even in California – which has taken a very cautious approach to reopening – case numbers have spiked recently, while hospital admissions have continued declining. In Texas however, hospital admissions have started increasing in the past week or so, having been flat for most of the past two months.
But there are clear differences in approach per state – While the trends in Texas and other southern states are worrying, the governors of these states appear to take a rather sanguine view of them. Texas Governor Abbott told reporters on Friday that there is “no real need to ratchet back the opening of businesses in the state” due to the number of hospital beds available in the state. Indeed, the data shows that even with the recent increase in hospitalisations, just over 25% of hospital beds remain available, with significant spare ICU capacity. However, there is a clear difference with the reopening approach taken in New York for instance, where Governor Cuomo has set more strict conditions for reopening, such as having over 30% of hospital beds available and a 14-day decline in net hospitalisations. On these two strict metrics alone, many southern states would already fail. Clearly, if current trends persist in the southern states, existing policy will be unsustainable and there could well be a need to reintroduce restrictions as healthcare systems approach capacity. However, the bar is also notably higher for rollbacks in these states. (Bill Diviney)
China Macro: May data show impressive comeback of car sector, while external headwinds are rising – China’s monthly activity data published earlier today show that the industry-led recovery is continuing. Car production is improving at an impressive pace, showing positive annual growth of +11.3% yoy in May (versus -4.4% in April and a trough of -83% (!) in February). Car sales is also back to growth territory (+7.% yoy in May, versus -2.5% in April). The recovery in the car sector is supported by targeted government measures, but likely also stems from the fact that consumers are still cautious taking public transport and prefer using private transport instead. Meanwhile, overall industrial production growth rose to +4.4% yoy in May (April: +3.9%), but the trend seems to be flattening out a bit. That is in line with our expectation, as it reflects rising external headwinds from the sharp drop in global activity that caused Chinese exports to contract by 3.3% yoy in May.
…and gradual recovery of domestic demand, with ‘social distancing sensitive’ sectors still lagging – Domestic demand is also showing signs of a further recovery. The annual, cumulative contraction of fixed investment is getting shallower by the month (May: -6.3% yoy ytd, versus -10.3% in April), but that is entirely owed to a pick-up of public investment with private investment still weak. Retail sales are also coming back quickly, although remaining in negative territory as well (-2.8% yoy versus -7.5% in April). Consumer-related, ‘social distancing sensitive’ sectors such as catering continue to lag, but are also regaining some ground (catering: -19% yoy in May versus -31% in May). So far, we do not expect another Covid-19 outbreak in Beijing to be a major game changer (as the authorities once more reacted in a decisive and targeted manner), although these developments may affect consumer confidence and could delay the recovery of domestic demand somewhat, in particular in the social distancing sensitive sectors. (Arjen van Dijkhuizen)