Daily Comment (May 18, 2020)

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

[Posted: 9:30 AM EDT]

Good morning and happy Monday!  Equity markets are on a tear this morning, and oil is also higher.  Reports that vaccine trials are going well are boosting stocks.  There wasn’t much news on China overnight, which probably accounts for some of the lift.  We update the COVID-19 news.  Here is what we are watching:

COVID-19: The number of reported cases is 4,730,968 with 315,488 deaths and 1,739,890 recoveries.  In the U.S., there are 1,417,889 confirmed cases with 89,564 deaths and 246,414 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.  It also has a chart showing global lockdowns.

The virus news:

  • The good news:
    • We are seeing a global reopening of economies, although, as one would expect, some new clusters of infections are being reported. In the media, the reopening debate is often pitted as health vs. the economy.  However, this binary position lacks necessary nuance.  A recent paper on the Nordic response concludes that mandated shutdowns had less of an impact on the economy compared to the virus itself.  In other words, just because lockdowns are lifted doesn’t mean that recovery follows rapidly.  People remain selective on what activities they will engage in based on perceptions of risk.
    • Vaccine research continues at a rapid pace. A reliable vaccine is the fastest way the world will return to any semblance of normal.
    • Italy has reopened its borders and suspended quarantines for visitors.
  • The bad news:
    • As we have been documenting for some time, the range of effects from COVID-19 infection varies widely. Large numbers appear to have either very mild cases or are completely asymptomatic.  Others are struck with a variety of maladies, including blood clotting, organ failure, etc.  Even months after recovery, some victims continue to report effects from the disease.
    • In the U.S., COVID-19 cases are now rising in rural areas as the crisis starts to dissipate in the urban centers. Unfortunately, the medical systems often lack resource depth and thus may have higher risk of fatalities.  A larger elderly population increases that risk.

The policy news:

The finance news:

The economic news:

The foreign news:

Brexit: Last week, we reported that trade talks between the EU and Britain were not going well.  It would appear the most logical outcome is an extension to give negotiators more time to develop a trade agreement.  However, PM Johnson has expressly ruled out asking for one.  This situation raises worries that a hard Brexit may be coming.  One possibility to avoid such an outcome would be a conditional extension, allowing both sides to continue talking without asking for a formal extension.  This is exactly the kind of “fudge” or “can-kicking” action that the EU does best.  The financial markets, especially the GBP, have been worried about a hard break, and the potential for a conditional extension reduces that likelihood.

View the complete PDF