Rabo: Voluntary Lockdowns Are Worse Than Official Ones As They Can’t Be Turned Off By Decree

Submitted by Michael Every Of Rabobank


The US is weighing winding-down its White House virus task force. It’s not yet winding down the actual virus itself, regrettably, though it may well be past the peak in New York. What will they find for Mike Pence to do? Or Dr Fauci and Dr Birx? Re-opening lies ahead, regardless. “Will some people be affected? Yes. Will some people be affected badly? Yes. But we have to get our country open and we have to get it open soon.” So says President Trump. As Bloomberg points out, Trump said this while touring a mask factory in Arizona while not wearing the required mask – and Guns N’ Roses “Live and Let Die” was one of the tunes played in the background.

It all helps build confidence, doesn’t it? As we keep pointing out, voluntary lockdowns are worse than official ones as they can’t be turned off by fiat. If people stay at home anyway, the economy will not recover as hoped. But who knows? Maybe Americans really are exceptional. Time will tell.

Likewise, what will Professor Neil Ferguson of Imperial College do? His sterling scientific advice guided the UK government in first aiming for unproven herd immunity, which was arguably disastrous, and then to a total lockdown on fears of 500,000 dead, which some “open up now!” critics say is also a disaster. Ferguson has now had to resign from his advisory post “after flouting lockdown to meet his married lover”, according to the Telegraph. As the UK fumbles towards an exit plan England and Scotland can’t agree on, and which the public seem sceptical of, it all helps build confidence, doesn’t it?

Not that the market needs much help in that regard. Oil was up big yesterday with Brent back at USD30: quite the swing. It must be due to all those airlines that will be flying imminently with new social-distancing regulations every step of the way from door to door while staff all wear masks and gloves. Can you imagine how slow check in, security, and boarding are going to be? To say nothing of the snack bar queues given no food and drink on board. Can you imagine what a ticket will need to cost as a result of all these measures?

Perhaps on the back of oil, US 10-year yields are up to 66bp, and Asia was mixed today with the Nikkei -2.8%, but that key USD/CNH cross is lower/stable despite the slew of bad news stories on the US-China front. (The latest being some Republican members of Congress arguing for a push-back against “Chinese infiltration” of the US higher education system, and the Washington Post printing an op-ed calling for the US to massively increase the size of its navy to boost jobs and send a message to China.)

On a different front, yesterday’s constitutional court ruling in Germany was also confidence-denting. The ECB can carry on with its bond-buying for now. However, the court ruled the ECB has to show within three months how its expanded QE scheme is in line with German law. The ECB has already responded that it will continue to do “everything necessary within its mandate” and that the European Court of Justice has previously ruled that QE is legal. This seems unlikely to convince the Germans. While multiple interpretations of the court ruling and its implications are possible, and an initial peripheral and EUR sell-off did not last long, it would appear the German court amplifies the message already being heard from many circles – that the Eurozone institutional architecture needs a huge shake-up. The German court is arguing it needs to be in a more Germanic, tighter money direction; other EU members, like France, want it to be in a debt-pooling, looser money, Green New Deal direction – which now seems to be a case of 999; and others in the east in a sovereignty-over-Brussels-regardless-of-economic-policy direction. Quo vadis, Europa?

In terms of data, today has so far seen NZ unemployment for Q1 edge down to 4.2% from 4.4%. Somehow Q2 is likely to look different. Likewise, March retail sales in Australia were up 8.5% m/m, a bumper reading, but only due to people bashing each other in the aisles over toilet paper, etc. April, and the rest of the year, is likely to look very different. Q1 retail sales excluding inflation, even including toilet paper, were only up 0.7% q/q vs. 1.8% expected, which mean Q1 GDP is likely to be even weaker than many had thought. March home loans were also up 0.2% m/m while investor loans were -2.5%, again suggesting a big hit to confidence in buildings that we can measure.

Meanwhile, India reported its monthly PMI survey…and services printed at 5.4, down from 49.3. That is not a misprint: 5.4, or half what we saw in the weakest Eurozone member readings for April. Confidence-building it isn’t.