Daily Comment (May 14, 2020)

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

[Posted: 9:30 AM EDT]

Good morning!  Equity markets continue under pressure this morning.  We update the COVID-19 news.  The Weekly Energy Update is available.  Here are the details:

COVID-19:  The number of reported cases is 4,364,172 with 297,491 deaths and 1,418,656 recoveries.  In the U.S., there are 1,390,764 confirmed cases with 84,136 deaths and 243,430 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.  Here is another map from Axios, showing the growth of new cases by state.

The virus news:

  • The good news:
    • One of the tools being developed in the fight against the virus is blood antibodies. These drugs are developed either from the blood of humans who have recovered from COVID-19 or from animals who have been immunized.  This report from the FT is a primer on the process.
    • We have been reporting on new UV light processes to disinfect public areas. A robot equipped with a UV light has been able to disinfect hospital rooms.
    • Researchers at Yale say they have found that saliva is superior to nasal swabs to test for COVID-19 infection. If true, this would make the testing process much easier.
    • Border controls and social distancing measures are being relaxed.
    • The bad news:
      • Wuhan has launched a mass testing drive after a series of new infections from COVID-19 were reported.
      • South America is seeing a surge in cases without the resources to cope with the economic fallout from the virus.
      • Although children usually have mild cases of COVID-19, there are reports from New York of 100 cases of an inflammatory syndrome that comes from the virus. It is unclear if this development represents yet another mutation of the virus.
      • The medical establishment is working feverishly to create a vaccine for COVID-19. However, there is the possibility that a vaccine may not be accepted by part of the public.  This would slow herd immunity if this outcome develops.   Meanwhile, data from Spain suggests only about 5% of the population has been infected with COVID-19 and thus herd immunity is much further off (70% is considered a minimum for herd immunity).
      • The WHO’s chief scientist, Soumya Swaminathan, told a group yesterday that it may take four to five years to get COVID-19 under control, depending on medical developments and virus mutations.
        • Although one would wish for something different, it is also likely that the virus will simply need to be accommodated. Broad lockdowns do blunt the initial rise of the disease but are not a permanent solution.  After all, economic disruption and social isolation carry their own dangers.  What Swaminathan is really getting at is that society will need to learn to cope with the virus, similar to how we accommodate influenza and other infectious diseases.
        • This may mean that vulnerable populations will take greater precautions than others.
        • One of the more disturbing, but not surprising, elements of the current situation is that COVID-19 has become politized. This leads to binary thinking—either you open the economy full bore and risk rising infections or stay locked down for good and have no growth.  But, in reality, this isn’t the only set of choices.  We can build safety into our economy without complete social distancing and have vulnerable populations take additional measures without having those who are less at risk carry the same burden.  Will things be different?    Airplanes may need to build different seating arrangements.  Some things may cost more.  A generation may learn to cook at home.  Hotels are figuring out how to sanitize so patrons will return.  But, people and societies are remarkably adaptable.  This will get figured out.

The policy news:

The economic news:

The market news:

The foreign news:

WTO:  The head of the WTO has resigned a year before his term ended.  The WTO leadership has been under great strain due to rising trade tensions, and Roberto Azevedo has apparently decided to move on.

Islamic State:  Islamic State is becoming active again in the area on the Iraq/Syrian frontier.  This region is generally not controlled by either Damascus or Baghdad, and with the U.S. reducing its troop strength it appears the group is coming alive again.  One sign of activity is that Islamic State is being blamed for a series of crop fires in Iraq.

U.K.:  In anticipation of trade talks with the U.S., Westminster is planning to cut agricultural goods tariffs on U.S. farm exports.  As one would expect, there is opposition from British farmers to the news.

German courts:  Although Chancellor Merkel was (as expected) non-committal, the judges of Germany’s Constitutional Court are holding firm on their position in the fight over ECB QE.  If Germany continues on this path, the Eurozone will either (a) acquiesce to German hegemony over the Eurozone, or (b) likely accelerate the breakup of the single currency.  This is a very difficult dilemma.

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