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The virus has a second wind

The latest pandemic figures from the World Health Organisation (WHO) and on the global tracking websites do not make good reading. There will be more economic consequences ahead.

The latest pandemic figures from the World Health Organisation (WHO) and on the global tracking websites do not make good reading. There will be more economic consequences ahead.

Charles Stanley

in Let’s talk about markets


Some countries such as India have still not seen a first peak in the virus. Meanwhile, numerous countries are experiencing a second wave after successfully curbing the virus through draconian lockdowns this spring.

Austria, Israel, France and Denmark are creating a new peak of infections above the previous high in the spring. The Netherlands second wave is close to overtaking the April figure. Peru's August figures exceeded their May peak. Brazil seems to be in retreat from its first high in July, and the UA is still below its July peak. Sweden, which opted out of the severe lockdown is not as yet experiencing an upturn.

The world figures remain unreliable. Different countries have undertaken very different levels of tests to try to locate the presence and scale of the infection. Different medical systems have adopted different criteria for defining a death with or from the virus. This matters as the large majority of deaths occur in people who have other bad health conditions which could of themselves kill them.

Infections still peaking

The global figures on Sunday showed a new peak of 30.7 million cases of the disease so far, with 954,000 recorded deaths. This gives a simple death rate of 3%. This is likely to be a considerable overstatement given large numbers who had mild forms of the disease or who were asymptomatic and never recorded as having it.

Western media interest in the grisly question of which country has had the worst death rate has waned a bit as the title has come to rest with Peru, followed by Belgium and Spain. One or two very small countries led by Andorra also have high figures. It was more newsworthy if it was a country that had disagreed with some of the World Health Organisation's advice and had refused to undertake a total and long lock down as recommended.

The figures as published do not necessarily show a worse experience for countries that failed to follow the global consensus.  China and the USA have carried out more tests than other countries, but this is partly a reflection of their size.  If we look at tests per million of the population amongst the countries carrying out most tests the UK emerges as the leader, followed closely by the USA and Russia. India's 61 million tests is a very small proportion of its population.

US-election complication

The US currently leads the world in terms of total number of cases and total number of deaths, in part, reflecting its higher incidence of testing than other large countries. This is becoming an important issue in the Presidential election. Joe Biden wishes to keep the focus on this topic, as he is seeking to attract to his coalition those older Trump voters from 2016 who are themselves scared of the virus personally and think the President has been too permissive in his approach, putting too much emphasis on saving livelihoods.

Meanwhile, the President seeks to haul the election back onto jobs and law and order where he thinks he is stronger. Mr Trump's task is made much more difficult by the persistence and increase in virus cases, particularly in Democrat led states who take tougher measures to try to control the spread of the disease. Democrat Governors can fuel the narrative about the dangers of the pandemic.

The upsurge in many places has several negative economic consequences. It is leading to series of ever-larger local lockdowns or partial national lockdowns, as governments rein in recent relaxations and try to find a better balance point between controlling the virus and keeping economic activity going. It damages economic confidence more, by putting the nervous off venturing out to spend money on travel tourism, leisure and hospitality. It leads to further rules and bans which undermine struggling businesses just as they seek to reopen and build up their trade again. The only winners in all this remain the digital revolution and online companies who continue to provide a substitute for work, entertainment and shopping outside the home.

The lingering virus with the sting from its revival is bad news for traditional businesses relying on personal social contact. It confirms our view that there can be no V-shaped recovery, and that there will be deep scarring in badly affected sectors. The redundancies and bankruptcies announced so far in sectors such as airlines, hospitality, shop retailing, vehicles and carbon-based energy have not got anywhere near trimming capacity and writing off capital sufficiently to adjust to the new realities.

We should expect stock markets to continue to differentiate between winners and losers strongly. We need to rely on plentiful supplies of central bank money and asset purchasing to sustain or lift asset values further. In recent weeks this has not been forthcoming.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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