Daily Comment (March 11, 2020)

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

[Posted: 9:30 AM EST]

On this day in 1918, the first cases of Spanish influenza were reported in Ft. Riley, Kansas.  How ironic it is that we’re now dealing with another big epidemic, though there is still no indication that it will be a mass killer like the Spanish flu.  As always, below we provide an update on COVID-19, its economic impact and the evolving policy responses.  We also discuss the escalating Saudi-Russia oil price war and the results of yesterday’s primary elections.

COVID-19:  Official data show confirmed cases have risen to 121,061 worldwide, with 4,368 deaths and 66,216 recoveries.  New cases continue to slow in China, but the epidemic is accelerating elsewhere.  In the United States, confirmed cases rose to 1,039, with 29 deaths and eight recoveries.  In the hot spot around Seattle, authorities say COVID-19 has now spread to at least 11 elder care facilities; at least three have reported fatalities.  Separately, New York Gov. Andrew Cuomo called out the national guard to help set up a “containment area” in a New York City suburb that has had a rash of cases.  Residents will be free to walk around the three square mile area, but significant public gatherings will be banned for two weeks.  Illustrating one important way the epidemic could impact the political process, former Vice President Biden and Vermont Sen. Bernie Sanders canceled campaign rallies yesterday on concerns about spreading the virus.  Across the pond, even Britain’s junior Health Minister Nadine Dorries has been diagnosed with COVID-19, less than a week after she attended a reception with Prime Minister Johnson.  In South Korea, a new cluster of infections discovered at a call center led to a surge in new cases that ended a four-day string of declines.  Italy had its deadliest day of the crisis, with its death toll rising by 168 to a total of 631 dead.

Oil market:  In a further escalation of the oil price war with Russia, the Saudi government said it would boost its crude production capacity to 13 million barrels per day from 12 million previously.  The announcement has put additional significant downward pressure on oil prices so far today.  However, as the threat of lower oil prices continues to suggest reduced U.S. shale drilling, investors are realizing that would likely also cut natural gas production (often a by-product of oil output).  Natural gas prices have therefore surged in recent days.

Russia:  President Putin said he would support a legislative proposal to lift the country’s term limits so could remain in power until at least 2036, which we discussed in yesterday’s Comment.  The Duma has already approved the change.

Super Tuesday II:  In yesterday’s Democratic primary elections, former Vice President Biden again put in a strong showing with convincing wins over Sen. Sanders in Michigan, Missouri, Mississippi and Idaho.  The race in Washington State is too close to call at the moment.  Based on current estimates of how many pledged delegates each candidate has won, we estimate Biden would only have to win 46.8% of the remaining delegates to lock up the party’s nomination on the first vote at the summer convention.  That suggests Sen. Sanders could well drop out in the coming days.  By removing the threat of Sanders-style “democratic socialism,” such a move would likely be positive for equities.  Just as important, Biden seems to be forming a broad, durable coalition consisting primarily of African Americans, white suburbanites and older voters.  That coalition would likely be potent in much of the Midwest and South.  In other words, Biden is positioning himself to be a strong rival to President Trump in the November elections.  If momentum keeps swinging toward Biden, we would look for many foreign leaders to push back stronger against Trump’s foreign and trade policies on hopes of waiting him out until January.

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