Daily Comment (April 17, 2020)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT]

Good morning and happy Friday!  Equities are rebounding this morning on a positive drug trial.  China’s GDP turns negative.  We update the COVID-19 news.  Here are the details:

COVID-19:  The number of reported cases is 2,169,022 with 146,071 deaths and 522,264 (yes, that’s down from yesterday) recoveries.  Here is the FT chart:

There is a clear bend in the U.S. curve, which is good news.

The virus news:

  • U.S. equity futures rallied overnight on reports that a clinical trial for Gilead’s (GILD, 76.54) remdesivir was effective in treating COVID-19 patients.
    • The reports came from a Chicago hospital. Remdesivir was initially developed to combat Ebola; it is an anti-viral, meaning it attacks the virus itself.
    • First, it is always good news when some drug works. Second, we are still a long way from remdesivir becoming a widespread treatment.  The Chicago report was a clinical trial; it was used alone.  The gold standard for drug testing is the double-blind study, where sick patients are either given the drug or a placebo.  Neither the patient nor the doctors administering the drug know what a patient is receiving.
    • The reports on what occurred in Chicago are glowing (hence the nearly 3% jump in equity futures), but without a double-blind study we may be merely observing a fluke.
    • It is also worth noting that remdesivir won’t prevent one from being infected by COVID-19; however, if it works, it may reduce the severity of the infection and save lives. A rough comparison is with Tamiflu; it doesn’t prevent one from getting the flu but it can make the symptoms less severe.  Remdesivir appears to be much more potent than Tamiflu but the usage is similar.
  • There is a myriad of treatment options being investigated. The U.S. is helping fund the vaccine effort.
  • The counting effort has become a source of uncertainty as well:
  • As we noted yesterday, we still don’t know enough about the virus. In Wuhan, serological testing has begun.  The initial reports suggest the city, which was hard hit, is still well below herd immunity levels.  Meanwhile, the U.S. Navy is nearly finished testing the sailors on the U.S.S. Theodore Roosevelt.  About 13% have tested positive and of those 60% were asymptomatic.  This would suggest a very wide dispersion in how people are affected and that silent carriers can spread the disease outside of social distancing.
  • The U.K. has extended social distancing measures for another three weeks.

The policy news:

The economic news:

  • Although it comes as no great surprise, China’s Q1 GDP fell 6.8% from last year, and -9.8% from Q4, for an annualized decline of 34%. This is the first decline in China’s GDP since it began reporting on a quarterly basis.  During the “Great Leap Forward,” which ran from 1958 to 1960, China experienced a -27.3% drop in GDP in 1961.

  • One interesting tidbit; excavator sales are jumping in China on expectations that there will be a jump in stimulus spending on public works.
  • As we reported yesterday, there is a looming bottleneck developing in the meat industry as the processors close due to worker infections. This is leading to shortages in stores and involuntary herd expansion for farmers and ranchers.
  • There has been a remarkable adjustment by manufacturers to repurpose assembly lines for medical supplies.

The market news:

The foreign policy news:

Odds and ends:  Argentina has made a restructuring offer for its debt.  It is looking for a three-year grace period from lenders.  The Navy is accusing Iran of harassing Persian Gulf shippingRussian oil firms are fighting over the allocation of production cuts.  Despite everything, the Johnson government in the U.K. refuses to ask for a Brexit extension.

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