More good news on the vaccine: but is it all priced in now?

Macro Update 23 November 2020
November 2020

There’s been a subtle but significant shift in the pattern of virus data in the last week or two – and it’s not good news.


Until recently, you could reasonably argue that Europe was on top of the virus. Lockdowns were being exited and although there was an inevitable rise in new cases, these were localised and swift action appeared successful. That can no longer be argued. Spain and France are seeing a steady rise in new infections.


ONS community infection data shows worrying trend…

And then there is the UK, where the government executed a sudden u-turn on Thursday evening, cancelling plans for a further easing with just a few hours’ notice. This was probably a direct response to the latest Office for National Statistics data for community infection published that day. It showed that the virus was rapidly rising within the general community. The UK is one of the few countries with such a study, which gives accurate and timely information on the virus outside of hospitals and other institutions. With around 80% of those with the virus showing no symptoms., this information is an important early warning. The figures on Thursday showed infection rates had risen by 50% compared with two weeks ago. With the lockdown being significantly eased as recently as 4 July, this is deeply worrying.


…and data further afield is even worse

A scenario where lockdowns would continue to be gradually eased in Europe now looks much less likely. Instead, restrictions are likely to be re-imposed, if not nationally then at least across wide regions. Another theme is that it is the young who are ignoring social distancing.

Meanwhile, the situation in the US is even worse. Although the rate of infections is now clearly slowing in the largest of the ‘sun belt’ states and falling at the national level, the absolute numbers remains high and further reopening would risk a third wave.

The conclusion is that while China has beaten the virus and has seen its economy recover swiftly back close to pre-Covid levels of economic activity, the rest of the world is unable to match that performance.

After a run of weeks when economic data have turned upwards and an earnings season where most companies have beaten depressed expectations for revenues and earnings, the outlook could now be less positive. This potential deterioration in the economic outlook coincides with some serious political concerns. Wrangling in Washington has prevented (so far at least) any agreement on a much-needed fiscal package, there are renewed tensions between the US and China, and the prospect of a Democrat ‘clean sweep’ at the November means US corporate taxes would head back higher.


Choppy markets in August

Bad politics and a bad economy sound like a negative background for risk assets, and it is, but positive news on a vaccine could stop markets from falling. The Oxford Jenner and other vaccines are moving successfully through the various phases of trials, and hundreds of thousands of doses have already been ordered by various governments. This is quite staggering progress. If trials showed that a safe and effective vaccine was available, then life, including economies and markets, could potentially return to something close to ‘normal’. That is the scenario that I believe is the central case. I do expect some choppy market moves in August, but the broad trend looks to me to be upwards.


A final note on sterling

We previously believed that stronger economic data could push sterling higher; aided by a weaker dollar, that has certainly been the case. But the outlook now appears distinctly less certain, until and unless we get a vaccine. The Bank of England is scheduled to meet this week and likely to be very cautious. As the furlough scheme begins to wind down, we should also expect bad news on jobs, and sterling could suffer.

Steven Bell

Managing Director, Portfolio Manager & Chief Economist, Multi Asset Solutions


Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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