Charting the resurgence of Covid-19 in Europe

Parts of Europe are back in lockdown amid a resurgence of Covid-19 cases. See what our charts this week show, plus exchange rate models, PPP theory and the gap between US GDP and GDI.

By 
Julius Probst, PhD
 on 
November 26, 2021

Covid-19 cases are surging again in Europe, especially in the DACH region where vaccination rates have been lower. The daily case rate in Germany has exceeded 50,000 in the last week – a record rate that is higher even than last winter, when the entire country was in strict lockdown. 

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Here we have reproduced the same chart using cases per million instead. Use the change region and duplicate function to add more countries to this list.

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The “Swedish experiment” was observed with great interest last year when the country decided not to go into lockdown mode contrary to the rest of Europe. Compared with its Nordic neighbours, Sweden suffered a much higher excess mortality rate in the spring and winter of 2020. 

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Moving to the markets now, the chart below shows how the benefits of diversification start to wane when they’re most needed – during times of turmoil and downturns. See the connection between the rolling correlation and equity volatility. When the VIX surges, the rolling correlation increases. 

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To China now and with all the talk of the Chinese economy slowing and a real estate bubble threatening to pop, it’s worth nothing that China is still very much a middle-income country. 

The country’s GDP–PPP (purchasing power parity) adjusted relative to the US increased from 5% to almost 30% since the 1980s. However, there is an increasing worry now that China will remain stuck in the “middle-income trap”.

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The law of one price states that the price of traded goods will have the same price globally no matter where they’re located, when certain factors are considered. 

The following two charts rely on the law of one price to get a fair value for the long-run exchange rate. The first one shows how the UK price level, rebased to 100 in 1990, has more than doubled since, while the eurozone price level has increased less – implying a long-run devaluation of the pound. The eurozone/UK relative price level has fallen by 14% while the euro/pound exchange rate has decreased by roughly the same amount, implying a fair valued exchange rate today.

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You can apply the ‘change region’ function to model a different currency pair, which is what we did with the US and Japan in the chart below. 

It shows the Japanese consumer price index has increased by only 13% since 1990 whereas the US price level has more than doubled. Based on this, the US dollar should have depreciated vis-à-vis the yen by 90%. But the actual depreciation was less than 30%. The yen is therefore about 60% undervalued. Japan should be a real bargain for US visitors right now.

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In the US, the gap between GDP and GDI (gross domestic income) has widened to a record. Last quarter, real GDP grew at an annualised rate of 2% while GDI grew at more than 6.6%. While many have been worried about a slowdown of the US economy, there is a chance that US GDP numbers for the third quarter will be revised upwards. 

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This next chart is only available to Macrobond users who have access to the Macrobond/Factset Equity Factor Aggregates. 

It shows an increasing divergence between the price-to-book ratio for the US and other advanced economies. Based on this particular measure, US equities are starting to look rather expensive.

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