It's bound to be a bumpy start in Asia as Dr. Fauci (probably wisely) threw a wet blanket on the US grand re-opening.
With the R rate of infection up in both Germany and South Korea after the re-opening and Wuhan seeing new virus cases pop up since lockdown ended, it’s proven to be an insurmountable wall of worry for Dr. Anthony Fauci to climb. The nation's top infectious disease official said "states re-opening too quickly” could "set you back on the road on trying to get economic recovery."
Wuhan city has been ordered to test the city's entire population of over 11 million people over the next ten days after six new cases were found. China remains incredibly nervous about Covid-19 and does not consider the crisis over by any means. And, as suggested in yesterday's London open note, at a minimum this could give Western governments and medical experts cause for a pause on their re-opening plans, at least until the Wuhan testing data has been scrubbed. Still, for the market's concerns, the Wuhan baseline curve findings could have significant consequences on the perceived shape and speed of the economic recovery globally if the curve has steepened.
The latest economic and more important healthcare reality check by Dr. Fauci strikes a sombre tone and could set the recovery back months, if not quarters. It’s difficult to see a way that near-normality can emerge in the months or even quarters ahead, given current public opinion which is generally in favor of a safety-first approach, given the lack of a proven vaccine. People will not feel confident leaving their homes, let alone going to work, until herd immunity sets in or a vaccine is made available to the masses.
Developed markets will bear the brunt while some emerging markets are faring relatively better overall – at least in terms of economic performance. Several countries in the Asia-Pacific region have been remarkably successful (relatively speaking) in containing the virus, in some cases with comparatively little disruption to economic activity.
This owes to varying combinations of prompt action to contain the virus, a robust widespread commitment to social distancing behavior, and a plethora of resources dedicated to testing and tracking. Sadly, the West was caught flatfooted in this regard and could pay the consequences of playing catchup on their health care commitment.
Even as the path of Covid-19 will primarily determine economic developments over the coming months, several back-burner events are adding a few more cinder blocks to that towering wall of worry. There’s still much to be determined on the blame game with the pandemic, further increasing geopolitical tensions between the US and China.
The current views on asset prices are relatively sanguine up to this point, which is a direct result of all the stimulus, the Fed's corporate credit facilities, and its 'main street lending program' which covers 40% of S&P 500 companies. But, based on what looks to be like a probable delay in the US and possibly global "grand" re-openings, which will unquestionably change the slope of the recovery, it suggests that for stocks to hold up they may require even more stimulus for investors to maintain that optimistic view.
A highly uncertain and worrying outlook lies ahead, and any short-term stability will likely come at a substantial long-term cost.
Welcome to the recovery roller coaster ride making frequent stops at the West Wing to cover "Main Street’s" back and 33 Liberty Street (NY FED) to make sure the wheels of the market are greased, and the daily check-in at Johns Hopkins to make sure the curves are flattening.
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