Modern Monetary Theory (MMT): from theory to practice

Virus still spreading. First, the sanitary situation: still worrying. The total numbers of recorded Covid-19 cases is now over half a million, and the number of deaths close to 25k.

Virus still spreading. First, the sanitary situation: still worrying. The total numbers of recorded Covid-19 cases is now over half a million, and the number of deaths close to 25k. Contagion from east to west continues, with the US now the center of attention: the country has more reported cases than China.

The total number of cases (world) has grown at an average daily pace of 13% in the week to 26 March, 5 points faster than the previous week. One bit of positive news, however: confinement measures seem to be working, with the number of cases in Italy now growing at less than 8% per day, down from about 15% just a week ago.

The United States are about 15-20 days behind Italy, so there is hope that in a couple of weeks percentage growth will also start to slow there. This is not for sure: social distancing in the US does not seem as severe.

CHINA’S Q4 GDP GROWTH SURPRISED ON THE UPSIDE, BUT RISKS TO THE OUTLOOK HAVE INCREASED

RELATED INSIGHTS

CHINA’S Q4 GDP GROWTH SURPRISED ON THE UPSIDE, BUT RISKS TO THE OUTLOOK HAVE INCREASED
This morning, China published its Q4 GDP growth alongside with December monthly activity data. Q4 growth accelerated to 6.5% yoy which lifted total 2020 GDP to 2.3%. December real activity data were more mixed. While exports came in strongly, important domestic demand components were a bit unsteady.
COVID-19 FACTS & FIGURES
US President-elect Joe Biden has unveiled a $1.9 trillion stimulus package proposal. Following the recent increase in cases, China has imposed new restrictions and lockdowns in the Hebei province. Canada has implemented new restrictions and a provincewide curfew in Quebec that will last until February 8. German Chancellor Angela Merkel warned that the recent rise in Covid-19 cases could force the country to prolong the nationwide lockdown until April.
EQUITIES: STAY POSITIVE WITH A VALUE-CYCLICAL TILT
Following a monster rally in stocks last autumn, multiples are well above historical averages, but equity investors can count on lingering low yields, tighter credit spreads and increasing central banks’ balance sheets which in turn maintain low the cost of equity and the discount rate of future cash flows.