Daily Comment (June 4, 2020)

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

[Posted: 9:30 AM EDT]

Good morning.  It’s ECB day!  The ECB continues to support the EU economy.  It’s June 4, the 31st anniversary of the Tiananmen Square Massacre; we note China is playing up the current U.S. civil unrest as a counterpoint to Beijing’s actions in Hong Kong.  Global equities are mostly lower this morning, as risk markets take a breather from recent strength; however, we have seen some recovery on the ECB news.  We cover the ECB meeting and look at the latest with China.  As usual, we update what we know about COVID-19.  We have a new Weekly Energy Update, with a special look at natural gas. Let’s get to it…

ECB:  In its prepared statement, the European Central Bank announced it will expand its emergency QE by €600 billion.  Interest rates remained unchanged.  It also said purchases will continue into June 2021.  Market reaction was swift; as the global risk-on rally has been supported by central bank action, news of the ECB’s move lifted global equities.  In something of a surprise, the EUR rallied as well.  Usually, QE is bearish for a currency.  In the press conference, ECB President Lagarde didn’t offer any major surprises

China:  Lots of China news:

Civil unrest:  The widespread civil unrest is further delaying the reopening of small businesses.

Foreign news: 

COVID-19:  The number of reported cases is 6,530,067 with 386,392 deaths and 2,820,488 recoveries.  In the U.S., there are 1,851,520 confirmed cases with 107,175 deaths and 479,258 recoveries.  For those who like to keep score at home, the FT has created a nifty interactive chart that allows one to compare cases and fatalities between nations, scaled by population.  Axios has updated its U.S. infection map.

  • The good news:
    • When thinking about a problem, it is helpful to know more about the issue one is trying to resolve. For the most part, medical researchers have been treating COVID-19 as primarily a respiratory disease.  This led to the crash production of ventilators and the search for antiviral medicines.  However, there is growing evidence that although the virus spreads through the lungs, the biggest impact may be vascular.  The virus’s primary impact may be to infect the endothelial cells in blood vessels.  When these cells become inflamed, it could lead to microclotting and would explain the wide variety of symptoms.  Unlike seasonal flu or SARS, which tend to remain in the lungs, COVID-19 spreads throughout the body, causing damage to kidneys, conditions close to frostbite in toes, and strokes.
      • If this is how the virus works, the best protection may come from ACE inhibitors, statins and blood thinners. There are trials now underway to see if losartan, a common high blood pressure drug, may prevent the worst symptoms of the disease.  In other words, if taking cardiovascular medicine prevents fatalities and hospitalizations, we could treat COVID-19 with common drugs and extreme measures to avoid the disease may not be necessary.
    • Scientists are studying patterns to see if there is a genetic basis that might explain the wide variation seen in the reaction to infection. There is evidence to suggest that there are sizeable numbers of asymptomatic cases and, at the same time, fatalities.  If a common genetic threat could be found, it may allow for less stringent lockdowns and could help in determining who should get vaccinated before others.  A recent European study suggests that having Type A blood increases the likelihood of a more serious reaction to infection.
    • The U.S. has selected five firms as vaccine finalists. Narrowing the list will allow the government to focus its efforts on producing a vaccine once an effective candidate emerges.  In related news, Eli Lilly (LLY, 152.53) is testing a new drug that is derived from antibodies developed from patients infected with the virus.
  • The bad news:

Policy news:

Finance news: 

Economy news: 

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