Beware of Western-centricity. Lockdown saved millions from infection, after lockdown residual social distancing continues to do so. For the markets its liquidity!

  • Beware of Western centricity! The pandemic is worsening globally. 7th June saw the highest single-day tally since the pandemic started with 136,000 new confirmed cases. The situation is under control in Europe, confusing in the US (curving downwards but with spikes in several states), and worrying in Latin America and South Asia.
  • Two new studies (coming to similar conclusions with different methodologies) shed fascinating light on what would have happened without lockdown. According to one conducted by Imperial College London, wide-scale rigorous lockdowns averted 3.1m deaths in 11 European countries (including the UK, Spain, Italy, France, and Germany). The other, led by Berkeley, concludes that 530m total infections, corresponding to 62m confirmed cases, were averted in 6 countries (China, South Korea, Italy, Iran, France, and the US). In the US specifically, 60m more coronaviruses infections were averted by lockdown measures, corresponding to 4.8m diagnosed infections.
  • The take-away: in the countries afflicted with Covid-19 registered cases roughly doubling every two days, governments had no real other choice than to impose rigorous lockdowns. Pretending otherwise is to ignore the power of exponential growth. Because of the extreme velocity of the pandemic progression, timing and forcefulness of the intervention were of the essence.
  • New research suggests that super-spreading events – all related to social gatherings – play a determining role in total transmission. 10 or 20% of cases could account for 80 per cent of transmissions. Conversely, up to 70% of infected people do not transmit the virus. If this is confirmed, it means that an anti-super-spreading strategy could by itself succeed in containing the virus. What would it be? The Japanese call it the “three Cs” strategy: limit exposure to (1) closed spaces, (2) crowds and (3) close contacts. That’s how Japan successfully beat the outbreak, in a manner less disruptive than extreme measures of social distancing.
  • In most of Europe, the non-resurgence of Covid-19 cases after easing of lockdown is great news and a bit of a puzzle for the scientific community. The opposite was expected and three reasons might account for this intriguing fact: (1) Residual social distancing: life is almost back to normal (in the countries like Switzerland that re-opened earlier than others) but people remain cautious; (2) Seasonality: the epidemic may be slowed by the current summer weather (like other coronaviruses that are highly seasonal, with a peak in winter); (3) Cross-immunisation: some people might have pre-existing immunity to SARS-CoV2 due to prior exposure to ‘common cold’ coronaviruses (a wild conjecture at this stage). The other great news is that many European countries seem to be coming out of the lockdown faster and easier than was anticipated.
  • As countries emerge from economic hibernation, output will first rebound impressively (and so will employment in certain cases), magnified by the very low starting base and spurred by pent-up demand (+ the excitement of coming out of confinement). However, this rebound will peter out before Q4, affected by deficient demand in the industries that have been structurally damaged (most notably hospitality) and companies repairing their balance sheet, or going bust. To get a sense of what’s coming, the most important economic indicator to watch is the savings rate.
  • Astoundingly, the S&P has recovered its losses for the year. The only possible reason one can find to explain a 40% rebound when the current P/E in US markets is in the top 10% of its history while the economy is in worse shape than it’s been for decades is liquidity. Worldwide, monetary easing has been ceaseless. This year, there have already been ‘innumerable’ QE announcements and 144 rate cuts globally. Aggregate rate cuts now exceed 50%!