Two strategies put to the test
In many ways, the coronavirus is a test of different governments to handle a similar problem.
Western Europe was hit first by the coronavirus but being ravaged for weeks and a strong lockdown, it's emerging with a relatively low number of daily cases. That's aiding a slow, steady reopening.
But will people shop and spend? Will governments be able to agree to spend more and stimulate effectively?
In the US, strategies were more divergent and the reopening has been quicker. Culturally there also appears to be more willingness to accept the risk of the virus and charge ahead.
Simplistically, you have one region that has fewer cases but more caution. The other has more cases but less caution.
There are p[potential short, medium and long-term knock-on effects on growth with both strategies.
Deutsche Bank macro strategist Jim Reid weighed in today:
At DB, we've had a lot of internal debate about whether the piecemeal, lack of centrally planned US approach to fighting this virus will eventually be worse for growth than the more synchronised and more thorough lockdown approach of Europe. My personal view is that whilst the latter looks very effective on paper, the fact that more of the US economy has remained open for longer means they'll probably see a better short to medium term growth outlook. It's hotly debated here though. The other thing to comment on around the four highest virus growth US states is that death rates still remain relatively low in them as you'll see in our tables. Overall, it's possible that globally we are now shielding the vulnerable better and that even if we do see a second wave it might not be as deadly as the first. Anyway, expect the market to be obsessing about these states this week.
That debate is worth thinking about while trading the euro this week and going forward. I expect US growth measures to be better in June and July but beyond that, a spike in US cases could flip the script and lead to a major move higher in the euro.
Technically, the picture right now is of stalling momentum in the euro.
