Daily Comment (May 11, 2020)

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

[Posted: 9:30 AM EDT]

Good morning and happy Monday!  Given the news flow of recent weeks, it was rather quiet overnight.  Risk markets are lower this morning.  We update the COVID-19 news.  Here are the details:

COVID-19:  The number of reported cases is 4,122,173 with 283,001 deaths and 1,418,656 recoveries.  In the U.S., there are 1,329,799 confirmed cases with 79,528 deaths and 216,169 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.

The virus news:

  • The good news:
    • One of the early concerns as hospitalizations rose was a shortage of ventilators. There were measures taken to repurpose assembly lines to make the medical device.  As we have noted in earlier reports, there have been cases of silent hypoxia, where patients have blood/oxygen levels that are critically low yet seem to exhibit little distress.  The usual protocol in such cases is to deploy a ventilator.  However, due to the lack of distress, doctors are now using less invasive measures to raise oxygen levels, instead deploying CPAP machines, laying patients in a prone position or giving oxygen.
  • The bad news:

The policy news:

The economic news:

The market news:

The foreign policy news:

  • For years, economists have argued that China’s economy was overly dependent on investment and exports. In fact, China’s policy mix deliberately disadvantaged households, forcing them to oversave.  This saving provided funds for investment but as household saving continued to rise, it swamped the needs of domestic investment, leading to large trade surpluses.  As China prepares its 14th five-year plan, policymakers are anticipating a more hostile foreign environment that will require more domestic-driven demand.  Perhaps deglobalization will finally prompt a policy mix that boosts domestic consumption and reduces the trade surplus.
  • The U.K. has outlined its reopening process. Although most stay-at-home orders remain in place, relaxation starts in earnest on June 1, when primary schools reopen.  Additional openings are expected in early July.  The U.K. will impose a quarantine on air travelers.
  • In response to the drop in oil revenues due to lower oil prices, Saudi Arabia announced a series of measures designed to reduce the impending fiscal deficit. Spending will be cut and its VAT rate will be tripled.  Austerity is rarely popular, so we will be watching the reaction to these measures from Saudi citizens.  We note that the kingdom has announced a unilateral 1.0 mbpd cut in production, likely in a bid to lift prices and oil revenues; oil prices jumped on the news.

Iran:  At least 19 Iranian sailors died in what appears to be a friendly-fire accident during naval exercises.  Although details are sketchy, it looks like a vessel was mistakenly struck by a ship-to-ship missile.  The exercises were being held in the Gulf of Oman; there are no reports that any U.S. ship was in the vicinity.

India/China:  The border between the two nations has been in dispute for some time but, since it sits in the inhospitable Himalayan mountain range, military operations tend to be limited.  It appears that soldiers from both nations exchanged words and non-lethal blows over the weekend before officers on both sides ordered troops to disengage.

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