Joe Biden’s most important running mate, Covid-19, has clearly turned massively in his favour.

The 7-day average daily new case count in America bottomed at 34,354 on 12 September and has since risen by 40% to 47,942.

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

Source: Johns Hopkins University

This writer’s base case remains that Covid-19 is in the process of burning itself out.

Still, if the US cases continue to rise in the next few weeks it will definitely be hugely to the benefit of the Democratic candidate, since it will keep Covid-19 as the main theme in the campaign, a dynamic that has only been furthered by the news on 2 October that Donald Trump has the virus and over 20 other people in his immediate circle.

Biden’s lead in the six battleground states has widened from 2.7% (48.1% vs 45.4%) at the beginning of September to 4.5% (49.1% vs 44.6%).

US Presidential Election Opinion Polls in Six Battleground States

Note: Poll average in Wisconsin, Michigan, Pennsylvania, North Carolina, Florida and Arizona. Source: RealClearPolitics, Bloomberg

Meanwhile the fundamental point on Covid-19, despite the continuing media noise, remains what is happening on deaths, not cases.

And the death rate in America continues to decline.

The 7-day average daily Covid death count has declined from 845 on 16 September to 712 on 10 October, after rising from 711 on 10 September, and is now 68% below the peak of 2,240 reached in April.

Europe is Learning to Live with COVID-19

The dramatic divergence between cases and deaths in Western Europe (ex-UK) also remains a positive, not a negative, since it demonstrates that the region has learnt to live with Covid-19.

The 7-day average daily case count in Europe (ex-UK) has risen more than 17-fold from 2,678 on 8 July to 46,719 and is now 58% above the previous peak reached in April.

By contrast, the 7-day average daily death count has risen from 34 on 2 August to 282, but remains 91% below the April peak of 3,198.

Europe (ex-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

True, there has been some talk of hospitalizations rising but this is minimal compared with what was seen in the spring as can be seen in the chart below.

For example, data from the European Centre for Disease prevention and Control (ECDC) show that weekly new hospital admissions per 100,000 of population in Belgium, France and Spain have risen from the lows of 0.57, 0.79 and 0.38 respectively in June/July to 4.72, 6.07 and 3.06.

But they are still way below the peak levels of 30.94, 32.72 and 49.12 reached in March/April.

Weekly New Covid-19 Hospital Admissions per 100,000 of Population in Belgium, France and Spain

Note: Belgium data up to the week ended 4 October, France and Spain data up to the week ended 27 September. Source: European Centre for Disease Prevention and Control (ECDC)

Meanwhile, the Swedish chart continues to suggest that that country’s approach to the pandemic has been the correct one all along.

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

Source: Public Health Agency of Sweden

True, the number of deaths surged at the beginning, rising to a peak of 99 deaths in mid-April on a 7-day average basis.

But this was because the Swedes failed to protect the nursing homes initially, the same mistake made by the British Government and New York State Governor Andrew Cuomo.

But that important lesson has long since been learnt.

It now looks from the Swedish data as if Covid-19 is all but over in that country.

The 7-day average number of daily cases is now 48% below the peak reached in June, while there has been only a daily average of one death over the past week.

True, there will be some pickup in cases as winter approaches, as has happened in the past four weeks. But, on this point, there is also going to be a lot of scope for huge confusion between ordinary flu cases and Covid since the symptoms are almost the same.

Continue Buying any Market Weakness

From an investment standpoint, this writer views any renewed market setback on second wave concerns as an opportunity to add to cyclical exposure.

This is for two reasons:

  1. First, the base case is that the world is much nearer to the end of the pandemic than the beginning, in line with Farr’s law.
  2. Second, fears of any renewed downturn, which will be reflected in the “risk off” market action, will lead inevitably to further monetary and fiscal stimulus.

On that point, markets have in recent weeks become concerned that another US fiscal package will not be agreed before the 3 November election date because of the Supreme Court issue following the death of Associate Justice Ruth Bader Ginsburg.

Maybe this is the case since the composition of the Supreme Court bench is a Beltway obsession, if not of the electorate at large.

But, in this writer’s view, if market action is bad enough the politicians will still come together quickly.  

The unemployment insurance funds allocated by the executive order signed by Donald Trump on 8 August will be depleted by mid-October creating another “fiscal cliff” in disposable income.

The extra US$300 weekly unemployment payment is now over in at least 19 states.

Meanwhile, the Atlanta Fed’s GDPNow model for the third quarter is showing a 2.5% YoY real GDP decline, based on an annualised 35.2% QoQ growth.

The official data will be announced on 29 October, five days before the election.

The 45th American president can be expected to hype up the quarter-on-quarter number.

US Real GDP Growth and Atlanta Fed’s GDP Now Forecast for 3Q20

Source: US Bureau of Economic Analysis, Federal Reserve Bank of Atlanta

Any such fiscal cliff, if it actually happens, will have Federal Reserve Chairman Jerome Powell rushing to demonstrate his willingness to help.

So while the consensus is not expecting any more Fed action until the December FOMC meeting, once the electoral process is completed and the result hopefully accepted, there is always scope for Fed action inter-meeting if the market action is violent enough.

Remember it is the Fed which follows the markets and not the other way round.

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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