US COVID-19 Data Improving

Attention remains front and center on the data for cases and deaths in America. In the short term, this is the only thing that really matters for markets.

The latest news on Covid-19 is encouraging in that both cases and deaths are now declining.

The 7-day average number of daily new cases has declined by 19.4% from the recent high reached on 22 July, while the 7-day average number of daily deaths is down 8.5% from the recent high reached on 1 August.

US Covid-19 7-day Average Daily New Cases and Deaths

Source: Johns Hopkins University

It is also worth emphasizing again that the average age of cases in the US has fallen which reflects the fact that the younger people have been doing the social intermingling.


Americans aged 0-17 and 18-49 accounted for 8.7% and 54.6% respectively of the weekly news cases in the last week of July, up from 1.9% and 47.4% in the first week of April.

This is “good” news because young people do not, for the most part, die of Covid-19.

Share of US Weekly Covid-19 Cases for Americans Aged below 50

Note: Include results from public health laboratories and commercial laboratories only. Not include results reported by clinical laboratories. Source: US CDC COVIDView

Meanwhile, the downside of the extreme politicization of Covid-19 in America, and the country’s resulting lack of a coordinated response, is clear from the extreme contrast with Western Europe where the data remains encouraging 14 weeks into an opening up of activity and also reopening of borders.

For while cases have picked up somewhat as is only to be expected with the reopening, there has so far been a conspicuous lack of a pickup in deaths.

The 7-day average number of daily new cases in Europe, excluding the UK, has risen by 199% from the low of 2,825 on 8 July to 8,445, but it remains 71% below the peak reached in early April.

While the 7-day average number of daily deaths has declined by 38% since 8 July and is now 99% below the April peak.

Europe (excl. UK) Covid-19 7-day Average Daily New Cases and Deaths

Note: Europe excl. UK includes Italy, Spain, Germany, France, Switzerland, Netherlands, Austria, Belgium, Norway, Sweden, Denmark, Portugal, Ireland, Luxembourg, Finland and Greece. Source: Johns Hopkins University

 

The base case here on the virus remains that Farr’s Law will apply and that the virus is in the process of burning itself out.

Ultimately, what should matter for markets is death rates not cases.

This fact is often lost in the media noise. It is also the case given current media focus that, if Farr’s Law applies, a vaccine will become redundant.

Trump vs. China – Election & App Wars

Moving away from Covid-19, US-China relations have also been back in the headlines amidst rising talk about a coming Cold War between the world’s two largest economies.

These concerns have been increased by evidence that Donald Trump has in recent weeks been increasingly prepared to blame China openly for Covid-19 or the “China virus”.

There have also been continuing tensions over Hong Kong fueled by Secretary of State Mike Pompeo’s stance on China’s national security law for that territory, as well as renewed aggressive measures from the US Commerce Department targeting China’s telecom equipment maker Huawei.

Then in the past week the Trump administration has moved to block the use of two so called “untrusted” Chinese “apps”, namely TikTok and WeChat, in America.

Still as the tensions mount it is worth remembering that the track record strongly suggests that Donald Trump is not a national security zealot, unlike the likes of Pompeo.

Rather Trump has been willing to use the Washington national security agenda as leverage on Beijing in a negotiation process rather than to implement in full the policies the China hawks recommend.

In this respect, it is worth recalling that Trump’s chief negotiator Robert Lighthizer stated last quarter that, so far as he was concerned, the trade deal was still on.

Lighthizer said of China in mid-June in testimony before the House Ways and Means Committee: “Every indication is that in spite of this Covid-19, they are going to do what they say”.

Trump himself also maintained that line at the time.

Indeed he wrote in a tweet on 23 June: “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!”

Still, it has to be admitted that the ever-mercurial Trump last month downplayed chances of a so-called phase-2 trade deal, telling reporters that he isn’t thinking about a phase-2 of the trade deal, adding that “the relationship with China has been severely damaged” by the Covid-19 pandemic.

This highlights the ongoing temptation for the 45th American president to run the presidential election campaign on a theme of blaming China for the pandemic.

That temptation will only grow if the pandemic is still raging in the run up to the November poll. But it is also an electoral strategy that, in this writer’s view, is likely to lead to defeat for the incumbent since it is a negative, not a positive, message.

Meanwhile, there is a practical problem with the phase-1 trade deal agreed with China in January just prior to the arrival of Covid 19 in America.

That is that the lockdown-triggered downturn has made it even harder for China to meet the already challenging commitments it had agreed to in phase-1, namely to purchase US$200bn more of American goods and services over two years compared with the 2017 level of US$130bn of goods and US$56bn of services.

This has become even more the case with the renewed efforts by the US Commerce Department to stop China buying semiconductors.

For the record, US exports to China declined by 4.6% YoY to US$49.5bn in the first six months of 2020, though they rose by 5.2% YoY in 2Q20.

US exports to China

Source: US Census Bureau

Still, a compromise can be agreed on this point if there is goodwill on both sides in the sense that both want to cement a deal.

If the virus has really peaked in America, and the economy continues to recover, there remains a real possibility that Trump will pivot back and want to celebrate a trade deal with China as one of the positive achievements of his first term in office in the presidential campaign.

In this respect, the key variable for US-China relations is, as for so many other things, the path of the pandemic.

To campaign on a narrowly focused China-bashing theme in the election would, as already mentioned, be both very negative and very risky for an incumbent president; just as it would be risky to campaign only on the negative theme of Joe Biden’s alleged incapacity to govern.

So, If Trump wants to win, he also has to come up with a positive message on the economy once the pandemic has passed.

It should also be remembered that the undoubtedly narcissistic Trump views himself as the ultimate “deal maker”. Not to conclude and celebrate his trade deal with China in the forthcoming election campaign, after having invested so much time and political capital on it would, from his personal point of view, constitute a failure.

The views expressed in Chris Wood’s column on Grizzle reflect Chris Wood’s personal opinion only, and they have not been reviewed or endorsed by Jefferies. The information in the column has not been reviewed or verified by Jefferies. None of Jefferies, its affiliates or employees, directors or officers shall have any liability whatsoever in connection with the content published on this website.

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