Like many readers, I tend to keep a close eye on the daily UK coronavirus stats – available online in various formats here: https://coronavirus.data.gov.uk/details/cases.
The data coming from many countries such as the USA and Austria has been deeply troubling suggesting that all that exciting talk about already touching herd immunity or the virus burning out, was just that – talk. That said one can get too carried away with the panic and assume that the sky is falling in when in fact the data is mildly encouraging though beset by hiccups.
The graphic below shows that the 7-day average has not been exponentially increasing and might in fact be starting to plateau out. Or at least they were until numbers came out on Nov 12th.
Analysts at Barclay’s have got a fairly sensible summary of what might be happening which goes as follows :
recent data points to “a sudden rush of activity before the nationwide lockdown in England (5 November). This may have contributed to the most recent spike in COVID cases. Nonetheless, some measures of the UK’s ‘R’ value are falling, possibly below 1 already, while indicators show activity slowing once the lockdown was implemented….New daily COVID-19 cases had been plateauing at around 22,000/day since late October, even before the imposition of the nationwide lockdown in England. However, the most recent data have shown a sudden spike with over 33,000 new UK-wide cases reported on 12 November. Some members of the medical community have attributed this to the sudden rush in activity in the days just before the lockdown was imposed (Telegraph, 12 November 2020), as the identification of new cases through testing has a lag of a few days from the point when the case was developed.”
I would add one other observation. Flu charts also show a sharp pick up in the autumn of most years and the current charts for Covid suggest that there might be an element of displacement at work – many of those who would have got the flu are now getting Covid instead. Which is not to say the two conditions are in any way equivalent in their impact, just that the pattern we are seeing might be predictable.
News that another potential vaccine – this time from Moderna – looks effective should help underpin market sentiment as we head into 2021. On that subject, Morgan Stanley’s big strategy report, led by Andrew Sheets, has just been issued. Its title tells you everything you probably need to know – “Keep faith in the recovery”. It’s predicting a A’V-shaped’ recovery, greater clarity on vaccines and continued policy support point to early-cycle dynamics and a supportive outlook for risk assets.
“Keep the faith, trust the recovery, and overweight equities and credit against government bonds and cash.”
One useful set of observations is that Andrew Sheets believes that 2021 might present similarities with 2010. He argues that “2010 followed a terrible recession and an aggressive policy response. It dawned with a still-weak economy, the Fed at the zero lower bound and a significant outperformance of ‘liquid’ indices such as CDX IG and the S&P 500 relative to equity volatility or securitized credit. It saw a major growth scare and a 15%+ correction in global equities. But 2010 was ultimately a solid, above-average year for returns. The lesson from 2010, which we think also applies to 2021, is that the cycle usually wins out. We are strong believers that markets care more about ‘rate of change’ than level and, following a recession, these cyclical tailwinds are powerful. We forecast 6.4%Y global real GDP growth next year, 25-30% earnings growth across major markets and significant declines in corporate leverage. “
Morgan Stanley’s main investment ideas ? “ Across regions, we see +25-30% EPS growth and double-digit total returns through end-2021. We are O/W cyclicals and U/W defensives across regions, and expect US small-caps to outperform large-caps. We think that EM/APxJ equities will lag DM slightly, but upgrade India to O/W. We see the S&P 500 at 3,900 by end-2021.” My emphasis added.
A quick side note – according to Morgan Stanley analysts, gold looks dodgy. “ 2021 may be a turning point for gold, and we revise our price forecast lower.”
One last chart today, courtesy of economic historian Adam Tooze.
He’s started to produce an excellent compendium chartbook, available here https://mk0adamtoozept2ql1eh.kinstacdn.com/wp-content/uploads/2020/11/Chartbook-1-15-Nov-2020.pdf
The chart below stood out for me. Tooze observes that QE-style interventions by central banks are now a spectrum running across DM and EM rather than a distinguishing mark of DM.
“ Purchases of central gov debt by Polish CB matches that by BofE!”
The data originally comes via this link.
Leave a Reply