Daily Comment (August 5, 2020)

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

[Posted: 9:30 AM EDT] | PDF

Moderating coronavirus infections in the U.S. and continued progress in vaccine and treatment studies are helping buoy risk assets so far today, despite a major explosion in Beirut that initially raised fears of terrorism.  Another important positive today is that White House and congressional negotiators say they’re hoping to reach a deal on the next coronavirus relief bill by the end of the week.  We review all the key news below.

COVID-19:  Official data show confirmed cases have risen to 18,570,858 worldwide, with 701,316 deaths and 11,163,388 recoveries.  In the United States, confirmed cases rose to 4,771,846, with 156,839 deaths and 1,528,979 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • New coronavirus cases in the U.S. climbed above 50,000 for the first time in three days, but the tally remained lower than during recent peaks.  In addition, there are now only 18 states where the seven-day average of new confirmed cases is above the 14-day average, compared with 48 states a month earlier.  The data appear to confirm a continued moderation in new U.S. infections, even if some states and some foreign countries continue to face accelerating cases.  The figures should therefore be supportive for risk assets today.
  • In contrast with the good news in the U.S. and many other major developed countries, the pandemic is still buffeting many large developing countries.  The Bolivian government has canceled its entire school year, worrying there isn’t enough internet reach across the country to make virtual classrooms feasible.  Longer term, there is also increasing concern that the pandemic will make it even harder for less developed countries to reach advanced country status.
  • Novavax, Inc. (NVAX, 157.17) said its experimental coronavirus vaccine induced promising levels of both neutralizing antibodies and T-cells in an early-stage human trial of the shot.  The company also said the vaccine was generally well-tolerated.  That means the Novavax vaccine is in the current horserace of almost half a dozen vaccine candidates that have either moved into a final Phase III trial or are preparing to do so.  The news should help keep alive the current market optimism that a shot can be approved around the end of the year.  There would still be many challenges to be met before the global population can be broadly immunized, but the vaccine progress to date is encouraging, which should be positive for risk assets.
  • In the search for treatments, researchers running a large national study found that hospitalized COVID-19 patients who received transfusions of blood plasma rich with antibodies from recovered patients reduced their mortality rate by about 50%.

Economic Impact

  • June retail sales in the Eurozone rose by a seasonally adjusted 5.7%, following a revised 20.3% gain in May.  That left sales slightly higher than in February, before the pandemic took hold in Europe, and it left sales 1.3% higher than in June 2019 (see tables below).
    • Clothing and footwear sales rose especially strongly in June, while fuel sales also continued to rise.
    • However, in a sign of what may happen in other advanced economies as they recover from the pandemic, online purchases and mail orders dipped after four months of growth, suggesting consumers were beginning to return to stores rather than relying on home deliveries.
  • In an interview with the Financial Times, Tokyo Olympic Games Chief Toshiro Muto insisted Japan will hold the event next summer as currently planned, even if the coronavirus isn’t yet under control.

U.S. Policy Response

  • Treasury Secretary Mnuchin said the White House and congressional Democrats are aiming for a deal on the next coronavirus relief bill by the end of this week.  However, he also warned that the two sides are not yet “at the point of being close to a deal.”  Given the way massive monetary and fiscal stimulus have been so instrumental in buoying the U.S. economy and financial markets through the crisis to date, continued negotiations and optimistic statements like Mnuchin’s are a positive for risk assets.  All the same, if brinksmanship rears its ugly head again or the resulting package is deemed disappointing, the markets could become volatile late in the week.

Lebanon:  After a massive explosion at a warehouse in central Beirut killed dozens of people yesterday, Lebanese officials offered assurances that the blast occurred because of a fire and was not on purpose.  Press reports say the explosive was 2,700 tons of ammonium nitrate seized from a Russian ship in 2014 and stored in a waterfront warehouse pending legal proceedings.  However, President Trump called the explosion a “terrible attack” and said U.S. military leaders believe the tragedy was caused by “a bomb of some kind.”  Even though Israel exchanged fire with Hezbollah militants on its border with Lebanon last week, an Israeli government official said Israel had no involvement in the explosion.

United States-China:  U.S. and Chinese officials have agreed to meet via videoconference on August 15 to assess Beijing’s compliance with the Phase I trade deal signed in January.  The meeting will reportedly include both U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, President Xi Jinping’s point man on economic policies.

United States-China:  In a move China will likely see as provocative ahead of the trade deal meeting, U.S. Health and Human Services Secretary Azar will lead a delegation to Taiwan to discuss the coronavirus pandemic.  Azar’s trip would be the first visit by a U.S. cabinet official to Taiwan in six years.  In a statement, Mr. Azar said his trip is intended to show President Trump’s support for Taiwan, its democratic government and the leadership it displayed in handling the coronavirus outbreak.

Saudi Arabia-China:  Based on information from Western officials, the Wall Street Journal yesterday said Saudi Arabia has secretly built a facility to extract yellowcake from uranium ore, advancing its drive to master nuclear technology and keeping open an option to develop nuclear weapons.  The Saudi government categorically denied the report, but the news is still bound to generate concern in the U.S. Congress, where a bipartisan group of lawmakers has expressed worries about Crown Prince Mohammed bin Salman’s vow to develop a nuclear bomb if Iran does so.  Given Saudi-Iranian enmity, possession of nuclear capability by both sides would seriously increase potential devastation in the event of war.  Besides that, the report said the facility was built with Chinese help, which will raise concerns that China might try to woo U.S. allies into its orbit with promises of nuclear technology.  Finally, the news will likely be concerning to Israel due to its past military confrontations with Saudi Arabia.

India:  Prime Minister Modi has presided over a ceremony to kickstart the construction of a Hindu temple on the site of a 16th century mosque, whose destruction in 1992 sparked deadly riots across India.  The ceremony underlines Modi’s commitment to Hindu nationalism one year after he revoked the semiautonomous status of India’s only Muslim-dominated region, Jammu and Kashmir (see our WGR from September 9, 2019).

North Korea:  After a period of relatively good behavior, satellite imagery shows North Korea has ramped up its sanctions-busting coal exports again.  The new activity is being taken mostly as a sign of increased economic pressure on North Korea.

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