Good News this week! B&Q is set to reopen 155 stores following the shutdown announced by the Prime Minister, just four weeks ago. Manufacturers including Jaguar, Bentley and Aston Martin are returning to work.
House builders, led by Taylor Wimpey will return to building sites. Social distancing measures must be put in place. Only one man on a ladder at any one time, that sort of thing. Businesses are encouraged to return to work as soon as possible.
Further relaxation of the UK clamp down will be made at the end of the month. Garden Centres are expected to open for the May Bank Holiday. A statement on early stage schooling may also be included in the package. In Georgia USA, gyms, hair dressing salons, bowling alleys and tattoo parlors are opening now, as Governor Brian Kemp prioritizes life for Americans in the South East state.
In the UK, the government is concerned there appears to be some relaxation of stringent observance of the lock down measures. Car usage is creeping up, more people in the parks, loitering with intent to sunbathe. The NHS is worried, people are avoiding the health service. Essential treatments including cancer care avoided.
The focus in policy is moving away from isolation, quarantine and lock down to testing, tracking and tracing. Grab a mask if you can get one. We are heading out. Herd immunity, didn't get much of a run, the mediaeval measures of containment are proving to be too expensive. Now the focus is on testing, testing, testing. At least it will assure the people, something is being done.
The Treasury has been taken aback by the reaction to the containment measures. One in four staff have been furloughed under the government scheme. 430,000 firms and 3.2 million workers are now claiming support at a cost of almost £4 billion pounds per month.
80% of businesses in accommodation and food have closed. 70% of companies involved in entertainment and recreation have shuttered for the duration. 40% in construction, 30% in manufacturing, 25% in transportation and storage. Retail sales fell in March by 6%, much worse is to follow in the second quarter. Clothing sales slumped by 30%, alcohol sales jumped by a comparable amount, as the nation turned to drink.
Primark reported zero revenues in April. Boohoo reported record revenues in the year to March. Online sales increased by 12.5% in the latest data, accounting for over 22% of all transactions, a record high.
From the data now available, we estimate GDP (O) output based will fall by 20% in the second quarter. For the year as a whole, growth could fall by 10%. The recovery in 2021 will offset most, if not all of the gain.
The real good news in the blue sky horizon ... hospital admissions in London and the South East are falling. The number of recorded deaths also appears to have peaked. Each death a family tragedy of course but the narrative is supporting an end to lock down. The social cost is high, the economic cost is astronomical …
Treasury to borrow £225 billion ...
The OBR forecast borrowing will increase by £270 billion in the current financial year, compared to £48 billion in the year to March 2020.
The Debt Management Office is set to tap the markets for £225 billion in the current quarter. A combination of new funding requirement and current debt rollover. Market appetite is considered to be strong for the issue. Who would have thought the 30 basis points on offer for ten year gilts would lure buyers into the fray. The Bank of England is ready to act as the buyer of last resort should lenders shudder. The process of Dire Straits QE, "money for nothing, gilts for free" has never been so sorely needed on Planet ZIRP.
Over in the US, Morgan Stanley estimate the deficit will be over $3.7 trillion dollars in calendar year 2020 and a further $3 trillion dollars next year. The government signed off on a $2 trillion dollar rescue package for the economy, over 4 million workers in the US sought unemployment benefit last week.
26 million have now made claims over the past five weeks as the pandemic measures hit the economy. Lay offs include staff from within the Trump empire including Mar-a-Lago. No wonder the President is keen to secure a return to work soon. The search for a miracle cure continues in the President's mind. Medical advisors shake their heads in disbelief at the meanderings of the stable genius.
This week, the federal government scrambled Friday to stave off a potential wave of public health emergencies. The move was sparked by President Trump’s suggestion that injecting bleach or other household disinfectants into the body might cure people of the novel coronavirus.
In Maryland alone, the state government’s emergency hotline received more than 100 calls from residents inquiring whether injecting a disinfectant really was a cure. Only in America, where 38% of beer drinkers insist they will not buy Corona beer as the pandemic sweeps across nation.
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers.
The government announced this week, the lock down will continue for another three weeks. The household siege, held over Easter. The continuation will run until the May Bank Holiday. It may be difficult to continue much into May, without some concessions to "Banged Up Britons".
Police in the parks urging people to "return to your homes, this is not a holiday" are not ideal You tube Clips for a laissez-faire Tory party. Matt Hancock was urged to present some "forward guidance" on when the lock up would be lifted. The Health Secretary could not resist. There would be five tests. Just like the five pillars of the Covid-19 tests. The results, not necessarily in order of importance ...
"When the NHS had capacity to cope, when the fatality rate could clearly be seen to be falling, when the same would apply to the infection rate, when we were testing over a gazillion people each week and when the Prime Minister was back in Downing Street, to take the blame if anything went wrong, with a second wave."
There is light at the end of the tunnel, the health secretary explained. The shortfall in PPE could be resolved, by urging front line staff to use essential equipment every other day of the week. More ventilators are on the way, soon to be redundant if latest medical advice is to be accepted. Just let patients lie on their stomachs, at least they won't be able to see what's going on around them.
In the economy more widely, the Office For Budget Responsibility added to the economic gloom, predicting GDP could fall by 35% in the second quarter. No mystery to the mechanics, construction output is assumed to fall by 70%, manufacturing by 50% and the leisure sector by almost 90%. Unemployment could rise to over 2 million according to the OBR model.
This week the ONS revealed that one in four businesses had closed in recent weeks as a result of the lock down policy. A further 38% had experienced a substantial reduction in activity. The OBR assumes a rapid rebound in the economy, once the second quarter has passed. The Adam Smith Institute warned on the other hand, that "without a plan to reopen the economy, there won't be one to do so."
As we warned earlier in the month, applying mediaeval measures of containment to a contemporary economy, will risk driving us all back to the Dark Ages. There is a debate emerging between the cost of life and the cost of livelihood. It will be a tough call for a young cabinet.
The data will not make this any easier. The case load of infections may have peaked in the UK but the outbreak is now following a "European path" rather than the Asian model precedent. The cabinet has another three weeks to assess the evidence. The health case, may yet pass the test, just in time to rescue the economy from significant permanent set back ...
China : Economy shrinks by over 6% in the first quarter ...
This week, China revealed the domestic economy fell by 6.8% in the first quarter.This was the first fall since records began in 1992. Industrial output fell by 8%. Investment fell by 16% and retail sales fell by almost 20%. The recovery will be hampered by the slow down in world trade and consumer caution in terms of spending plans and leisure habits. For the year as a whole, growth is expected to be around 2.5% compared to 6.1% last year. In the U.S. ...
Mutiny on the Bounty ...
It has been a tough week for the President. Trump experienced his worst melt down, ever according to reports from the White House Press Corp.
New chief of staff, Mark Meadows is said to be overwhelmed in the role and has been reduced to tears on occasions. Meadows is the fourth in the office under Trump. The odds are, he will be the shortest tenured yet.
This week Trump retweeted a call to sack Dr Anthtony Fauci, his own public health adviser. Funding for the World Health Organisation was suspended. The President blamed the WHO for assisting China, in a cover up of the initial outbreak and for criticism of his decision to suspend flights to China in January.
The North East state governors were accused of plotting to sabotage his exit policy. The President was set to order the states to open on the 1st May, until it was explained this was a state decision and not one for the White House. Then came the tweet ...
"Tell the Democrat Governors that “Mutiny On The Bounty” was one of my all time favorite movies. A good old fashioned mutiny every now and then is an exciting and invigorating thing to watch, especially when the mutineers need so much from the Captain. Too easy!"
On Friday, Trump urged the Democratic States of Michigan, Minnesota and Virginia to "LIBERATE" the people and to start loosening the strict social distancing guidelines. "Set my people FREE" the president's exhortation. The announcement came the day after the White House issued new federal guidelines on reopening the economy. The plan is to ease restrictions on businesses, residents, visitors to Trump hotels and Mar-a Lago specifically.
Goldman Sachs this week claimed the U.S. is past the worst. The number of infections does appeared to have peaked. The government and Federal Reserve have thrown some $6 trillion dollars at the economy. The President's name has been printed on the hand out checks. Still the unemployment number has surged by 22 million.
The call for a return to normality is understandable. A sense of panic is sweeping through the White House. Election looms within months. The State Governors, Democrat and Republican alike, will be more cautious in the return to work strategy ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track with us, the progress of our forecasts of the outbreak.
In Denmark, day schools and nursery schools will open on April 15th. All other restrictions, including the closure of bars, restaurants, hair dressing salons and shopping centers will stay in place, until the middle of May.
In Austria, DIY shops and garden centres will reopen next week. Retail stores and hair dressing salons will be open, from the end of the month.
In Spain, the lock down is to be partially eased. Factory and construction workers are to restart work. Most shops and offices will stay closed for the moment.
In Sweden, schools, nurseries, bars, restaurants and sports clubs, all remain open. Social distancing is observed within reason. To date, there has been no dramatic surge in cases or fatalities.
In the UK, the government is preparing options for an exit plan over coming weeks. Public Health England suggested schools could reopen, as coronavirus restrictions begin to be lifted. Head teachers are said to be lobbying, to reopen schools before the summer holiday, subject to scientific advice.
Paul Cosford, the agency's medical director, said that easing the lockdown for the young was being considered. "The importance of children being in school is paramount".
For the moment, the government has made it clear, it is too soon to consider reopening schools. The priority is to maintain the clampdown until there is clear evidence of a slow down in cases and fatalities across the country. Professor Ferguson, from Imperial College, in a Radio 4 Today programme said. "It's going to be several weeks before we can definitely conclude anything about the rate of decline and hence when measure may be lifted."
The good news, as expected, the UK case load peaked last week. The garden centres could be allowed to re-open soon, if the good weather continues. The kids could be back in school 'ere too long. We continue to expect some social relaxation by the end of April, with a more extensive release by the end of May.
"We don't want these measures to continue longer than is absolutely necessary" Professor Ferguson explained, "the economic costs, social costs, personal costs and health costs are huge" and so they are ... the economic costs, in particular, are simply unsustainable for too long ...
Lock down to cost Treasury ...
Reports this week, the lock down will cost the Treasury £2.4 billion per day as the shut down continues. The government has been shocked at the extent to which the social distancing measures have lead to a collapse in economic activity.
The Chamber of Commerce reported this week, 20% of their members intend to furlough all staff, two thirds said they would furlough between 75% to 100% of the workforce.
The Resolution Foundation, has suggested the government plan to subsidise wages could cost the Treasury £40 billion, every three months in which the scheme operates.The Bank of England has extended the Treasury's overdraft limit to assist with funding.
Consumer confidence has plummeted. The unemployment rate is set to double. Car sales fell by over 40% last month, retail sales fell by 40% last week. Footfall in shopping centres and retail parks collapsed as traffic fell by over 80%. Construction output fell. The latest reports from IHS Markit's PMI dropped to 39.3 in March from 52.6 prior month.
We await with some concern the data on manufacturing and the service sector, the numbers will not make for great reading within The Treasury.
Capital Economics have suggested the economy could shrink by 15% in the second quarter. CEBR, the Centre For Economics and Business Research have suggested a 30% drop is possible. Using a relatively simple output and employment model by sector, it is pretty easy to arrive at a drop in output of 20% which would lead to a jump in unemployment to 20% without government intervention.
In the US, JP Morgan is forecasting a collapse in GDP levels by 40% in the second quarter. Over 16 million jobless claims have been filed in the last three weeks. The number could rise to 25 million in April with the unemployment rate rising to over 20%.
WeWork has warned it will be skipping some rents, McDonald's has warned of "difficulties" as sales fell by 20% last month. The World Trade Organisation has warned, global trade is heading for an ugly fall. Danny Blanchflower is warning of a second great depression.
Most economists expect a rapid recovery once social sanctions are lifted. The lock down cannot continue for too long. In the U.S. the President is subject to conflicting advice from scientists and economists. The option to reopen the USA on Mayday would appear to be a step too soon even though the case load may have peaked in certain states already ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track with us, the progress of our forecasts of the outbreak. Our social media reach is now extensive, we had over 75,000 views of our LinkedIn post last week.
In Italy, the epidemic is slowing down. Following four weeks of shutdown. Italian officials say it will take until Easter to reduce infections sufficiently, to begin a relaxation of quarantine measures.
Sections of industry will be urged to return to work, under stringent safety conditions. Italian restaurants and bars are expected to begin to re-open at some stage later in May.
In Spain, as expected, the case load peaked last week. Both Italy and Spain have recorded over 100,000 cases. The fatality rate is now 12% in Italy and approaches 10% in Spain. In the UK, 34,000 cases have been reported, the fatality rate is now 9%.
The good news we expect the peak to be reached within days. The intense "quarantina" period will have been completed at the end of April. Some relaxation of home confinement restrictions may then be possible.
Our analysis continues to suggest the crisis could be over by the end of May. The all clear sirens could be firing in early June. Restaurants and bars could be reopening in the month. Shoppers will return to the high street to snap up the bargains, as retailers shed stock.
From the data available from China and the experience in Europe, we are able to produce a projection of the case load in the UK against a European index. Our C19 index (below) maps the progress of UK cases against the model projection. If we are right, the UK case load will peak early next week. Overall some 110,000 cases will have been experienced in the cycle by early June.
Professor Neil Ferguson from Imperial College College, advising the government on the crisis, expects the case load to peak in the next week to ten days. He told BBC Radio 4 "The critical thing first is to get case numbers down. Then I am hopeful, in a few weeks time, we will be able to move to a regime which will be a little more relaxed in terms of social distancing".
Boris Johnson and Matt Hancock, have urged people to stick with the guidance and stay at home, maintaining strict social distancing guidelines. "If observance is relaxed, that would move us to a slightly more pessimistic scenario" Professor Ferguson explained.
Lord King, former Governor of the Bank of England, warned of "rebellion" if the shut down went on too long. Never one for sensationalism, he called for the government to set out an exit strategy and soon. "A lock down that lasts for months is unrealistic and will materially damage the economy." he said.
In due course we will begin to model the impact of Covid-19 on the UK and world economy. As the virus sweeps across the USA, the impact on jobs and the economy is already quite startling. In the UK, the impact can only be partially mitigated by Treasury largesse.
The government will set out the exit strategy soon. The case load must be seen to have peaked first. We cannot do otherwise. Applying mediaeval measures of containment, to a contemporary economy, will risk driving us all back to the Dark Ages ..
Beijing takes the lead in world crisis ...
As the domestic case load dwindles, Beijing is striving to take the lead in the world Covid-19 crisis. According to CNBC, this is the first international crisis in which China is actively taking a global leadership role.
On social and state media, China continues to promote its shipments of medical supplies to hard hit countries in Europe and Africa.
In the last few weeks. Chinese President Xi has been busy calling leaders across the world, rallying for global coordination in managing the outbreak. Health experts have been hosting video conferences with those from other countries to share the experience.
Keyu Jin, associate professor of economics at LSE, explained "This is the opportunity of the century for China to build trust in the world and to rebuild its international image. China does not want to waste an opportunity like this. China will cement its place as a global power."
In Washington, officials struggle to deal with the outbreak without offending President Trump. The President is convinced he is doing a great job, with an incredible grasp of virology and epidemiology. Who would have thought?
Dr Anthony Fauci is the task force doctor and expert immunologist advising the White House. Dr Fauci has contradicted and refuted Trump's claims about the virus multiple times in recent months. His counsel cannot be but short lived. Reporters at the White House press conferences regularly play the "Where's Fauci" game. The Doctors absence at any time, leads to an assumption he has been relived of duty. Not to worry, the President has everything under control but won't be taking the lead on the world stage just yet.
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track the progress of our forecasts of the outbreak and our timeline for relaxation.
Our social media coverage is extensive, we had almost 50,000 views of our LinkedIn post last week. We are building our presentation for the Brabners Economics Webinar at the end of the month. More on this next to follow ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
Watch the numbers not the headlines,
In Beijing the rush hour is back. Travel restrictions are being removed. Life is slowly returning to normal. No new cases have been reported on the mainland for over a week now.
The government is urging a swift return to normal. Businesses are urged to use smart technologies to accelerate the process. Over 70% of small and medium size businesses are now back in action.
Smaller businesses struggle to meet local authority regulations in place to control the virus. Distance working, within units, can pose problems, the supply of face masks is a further inhibiting factor. Remote working and smart manufacturing platforms are encouraged as part of the process. China is well set to facilitate the change.
China's cloud infrastructure has grown rapidly over the past few years. The market grew by almost 70% in the final quarter of 2019, with a value of $US 3.3 billion. Alibaba Cloud accounts for 47% of the market, followed by Tencent Cloud and Baidu's AI cloud. Despite the economic shock of the viral outbreak, the acceleration of of cloud, will be one of the beneficiaries of the change in working habits likely to result.
Despite the recovery from the viral outbreak, China faces the problem of a second economic wave as markets in the West face lock down. Output may have fallen by 10% in the first quarter. Further setbacks are expected in the second quarter. Forecasts for growth in the year have been reduced from 6.1% to 2.6% by CICC. Despite an expected bounce back in consumer spending and investment, exports may fall by as much as 20% as world demand slows.
China's recovery offers hope to the West and should be a model for recovery. As expected the Italian daily case load topped out last week. Despite the higher number reported yesterday, our momentum model suggests the downturn will continue. Spain is now reporting higher numbers but should peak within days. The UK is set to enter the "eye of the storm", the numbers will accelerate in the week ahead.
In the U.S. Trump is suggesting it could all be over by Easter. Our viral model suggests the end of May, early June, is more likely ...
Rumours of Our Deaths Greatly Exaggerated ...
The good news, rumours of our deaths are greatly exaggerated. According to the latest research from Imperial College, The lock down has been so successful, Britain is now on course for an estimated 5,700 deaths from Covid-19.
"Our work shows that social distancing is working" said Tom Pike. Neil Ferguson, Professor Pike's colleague at Imperial college, presented a model analysis suggesting the virus would kill 260,000 people, had Britain maintained a less restrictive policy. "Left unchecked altogether, the death rate could have been as high as 510,000" he added.
The 510,000 number, assumed an 80% infection rate. That's far higher than the Spanish Flu of 1918 and the experience of crew and passengers of the Diamond Princess in 2020. Both around 20% were higher than the reported infection rate in Wuhan province of around 1in1000.
So should we take comfort from the latest volte face from Imperial? Of course. Wuhan province reported just over 3,000 deaths from almost 70,000 cases in a population of 60 million people. Pro rata the UK case load would be around 90,000 with a projected loss of life of less than 5,000. The adjusted rate would be almost 1% lower as many would die of natural causes.
Bit gloomy this for a Saturday? I hope not. Numbers in the UK are set to accelerate over the next week. We expect the case load to peak within the next ten days. The viral episode should be over by the end of May. Social distancing measures should be easing by the end of April.
The virus is behaving as expected, the strike on Downing Street, just part of the process. For most businesses, the focus is on cash and survival over the next few months. As with all things, this too will pass, sooner than many expect. Then comes the sunshine and the opportunity to benefit from the strong recovery expected.
Fears of a second great depression, as with rumours of our deaths are greatly exaggerated ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
Watch the numbers not the headlines, John
Thumbs up in Wuhan. The Checkpoints are taken down, travel restrictions are eased. The city hardest hit by the epidemic is slowly returning back to normal. Elsewhere in the country, other cities have been easing control measures. China has reported no new domestic cases for three days now.
The China viral episode is marked as a twelve week cycle, a perfectly "normal" pattern of viral distribution. The critical phase, the six week "quarantina" phase lasts six weeks. 95% of cases, (within two standard deviations of the norm), occur in this critical phase.
Should we be surprised by this? Not really. Quarantina is the Venetian word for forty days. Forty days was the period of isolation for new ships arriving at port in the 14th century. Michael Levitt, the British American Israeli biophysicist, predicted the epidemic would disappear from China by the end of March. The Nobel prize for chemistry was the scientist's prize in 2013. His speciality is not epidemiology nor virology. For Michael Levitt, modelling the viral epidemic is a numbers game and a pretty simple numbers game at that.
Levitt explains, "In exponential growth models, you assume that new people will be affected every day because you meet new people. But most of us meet the same people every day. You may meet new people on the bus or in public places but gradually most people will be infected or immune".
To stem the epidemic, in the absence of vaccine, the virus must be starved of victims to limit the outbreak. The government may claim we have moved from the containment phase to the delay phase but this is not correct. Home isolation and social distancing are measures to contain the virus, there can be no delay. The viral episode self extincts.
Neither can we flatten the curve. We can lower the peak of the outbreak by imposing radical social distancing measures and other "non pharmaceutical interventions". A viral spread is a mathematical function with three critical ratios, the infection rate, the reproduction ratio R(0) and the fatality rate.
Assuming an R(2) ratio, ie patient zero infects two people, then 2 people infect 4 people and so on, in a population of 100 people, the virus runs out of victims after just five steps. Then the case load falls, just as dramatically as it has risen.
In our C19 tracker we analyze the daily situation reports published by the World Health Organisation. Italy recorded over 5,000 cases yesterday. We are anxiously waiting for the tide to turn. The next few days will be critical. For Korea and Iran, along with China, it would appear the worst is over.
In the UK,. the numbers will escalate rapidly in the days ahead. Further social distancing measures may be announced. It is important to watch the data to call the move. The worst could be over by the end of April, the all clear sirens may be heard by the beginning of June ... Our people must be told there will be an end to this ...
Cometh the Hour ...
Boris Johnson shut down the pubs, restaurants and clubs this week. We were all asked to self isolate in the case of infection. People over seventy were advised to stay indoors. The government is shutting down the leisure, travel and hospitality sectors in a bold measure to protect the population.
The measures to deal with a plague or viral epidemic have not changed much since medieval times and beyond. Left untreated the economy could return to the dark ages.
Cometh the hour, Cometh the man. The Chancellor announced his bold budget on the 11th March. It all seemed so irrelevant within the week. Fears that millions of jobs could be lost, prompted the most radical intervention to stem redundancies and layoffs. Payment of wages, Cash injections, VAT holidays, Interest Free Loans, Welfare Measures, an increase in universal credit, support for renters and much more. We are set to part nationalize the airlines and airport business along with the rest of the transport sector,
The Treasury did not put a figure on the size of the bail out. The option to watch the economy lapse into free fall would have been too expensive with no prospect of a rapid recovery. Economists are forecasting recession. Borrowing is set to increase above the £160 billion in 2009/10. The bank has cut rates twice to ease the funding cost. The markets reacted by pushing up ten year gilt rates.
Where will the money come from? More QE. The Treasury will fund the deficit. The Debt Management Office will issue the debt. The Bank of England will buy the debt, underwritten by the Treasury. The interest payments will be returned to the Treasury. They are guaranteeing the debt after all.
So we are stuck on planet ZIRP with a plague on our financial houses. We cannot predict the impact on markets and economies until we have marked the path of the C19 virus. We will publish our regular C10 tracker updates, watch this space.
We plan a series of webinars at the end of April. For the moment, stay safe, wash those hands and watch the data. Above all stay in touch.
That's all for this week. Have a great, safe, week-end.
Turning the tide in 12 weeks, is this what the Prime Minister is talking about ...
1 The "China syndrome" offers a classic viral "model".
2 We can assign a “90 day window” for the episode.
3 95% of the cases (2 standard deviations) occur in the critical six week window. 40 days to be exact. This is the old Venetian 14th Century “Quarantina” period for foreign ship isolation.
4 Europe is tracking the China Syndrome at the moment. (We really need to see the turn in Italian data in the next few days to confirm the hypothesis.
5 Our guidelines are … (Base case and Best Case Scenario)
5.1 Plan for a 90 day window. The UK is tracking two weeks behind Italy and one week behind Germany.
5.2 We are now (UK) in the “Quarantina" Peak Period. There will be dramatic increases in infections in the next two weeks.
5.3 We could see “Mandatory House Confinement” shortly in parts of the UK.
5.4 The critical phase could be drawing to a close by the end of April. (Possible end of MHC).
5.5 The return to normal could begin towards the end of May.
Let's hope this is how things work out. Stay safe, Wash those hands,
The Saturday Economist ... we always keep you in the picture
Flatten your sombreros and wait for the sunshine, appears to be the key advice from Government in the midst of the Coronavirus crisis. The government model assumes a 60% infection rate is necessary to guarantee herd immunity.
With a population of 67 million, 40 million will be infected. Three million critical cases, will overload the 160,000 NHS beds available. With a 1% fatality rate, the death carts will be rolling down the streets of Britain. The cry of "Bring out Your Dead" would lead to 400,000 bodies, piled into emergency graves around the country.
Boris Johnson warned this week, we should prepare to lose more of our loved ones. Some thought this was a hint of another cabinet reshuffle, others the Number Ten Dog, called Dilyn was to be returned to the dogs home. It's a Jack Russell Cross, apparently, well, it certainly wasn't very pleased. It was left to the PM's fiancée, Carrie Symonds to assure dog lovers everywhere, the mutt was staying put.
To avoid a crisis in the health service, the government plan is to flatten the curve. We are moving from the "contain" phase to the "delay phase". The "contain" phase obviously didn't go to well, not much hope for the delay phase either. Hope is for the sunshine and UV rays to inhibit or kill the virus as the warm weather arrives.
So what can we really expect? The evidence from China suggests the covid-19 epidemic operates within a six week cycle. 40 days is the classic viral curve. The word "quarantine" is derived from the Italian "Quarantina", "Quaranta Giorni", or forty days. In the 14th century, ships arriving in Venice, were required to sit at anchor for 40 days before disembarking. The Venetians had learned from experience.
So much for flattening the curve. Statistically the reproduction ratio R(0) of the virus is 2.3. Within 21 basic steps, the virus will impact a population of 90 million.
In China just 11 new cases were reported yesterday. In Hubei province, a population of some 59 million, a total of 68,000 cases have been reported and 3,062 deaths have been recorded. The infection rate is just over 1.1% of the population. The mortality rate is 4.5%. The adjusted mortality rate is 3.7%.
In Korea, 250,000 people have been tested. In a population of 51 million, just 8,000 cases have been identified. 66 deaths have been reported. The mortality rate is 0.8%.
In the U.K. so far 1,144, cases have been reported, with 21 deaths recorded. Worse is yet to come, assuming the China syndrome unfolds. The number of cases in the UK could rise to over 75,000 with 3,500 deaths involved. For many this will be a great discomfort and tragedy. For the UK as a whole, Government reports of our potential deaths appear to be greatly exaggerated ...
President Xi visits Wuhan ...
In China, President Xi made a visit to Wuhan. The emergency hospitals built in just ten days, have closed, the epidemic appears to have passed.
Hailing "Victory to Wuhan" and saluting the people as "heroes", the President used his first trip to the province since the outbreak, to signal that China had turned the tide in the battle against the deadly disease.
The message to the domestic audience is the "Rampant Epidemic" has now been brought under control. This has been possible, only under the leadership of people's hero Xi. "It is time for businesses and factories to return to normal" and for the country to refocus on economic growth.
Foxconn founder Terry Gou, reported this week, supplies to plants in China and Vietnam have returned to normal. Resumption of production in mainland China, had exceeded expectations following the disruption from the coronavirus outbreak. The company warned revenue would drop by 15% in the first quarter. Output will return to normal but fears persist for the level of demand in China in the short term and sales in Europe and North America into the summer months.
For good measure the Chinese government confirmed plans to build 215 new airports over the next fifteen years. Fourteen new airports each year will be built. China's aviation industry will become a key part of the economy of the soon to be largest economy in the world.
In the US the President's statements on the outbreak merely added to the confusion and chaos. The National Guard were called into New York. A National Emergency was declared, merely adding to the growing sense of panic.
That's all for this edition. We will be back with more news and analysis, as we look at the impact of the budgets and market developments over the past week.
Stock markets came under further pressure this week. European stocks closed lower. The FTSE ended the week at 6,463, the lowest level since June 2016.
In the US, markets fared better. The Dow closed up on the week 250 points at 25,400. The S&P and NASDAQ held firm. Sentiment had been badly hit by reduced forecasts for world growth from the OECD and the IMF.
The Coronavirus could "halve global growth", according to the Organisation for Economic Growth and Development. "Covid-19 presents the greatest danger to the world economy since the financial crisis of 2008" it said.
The IMF warned the spread of the disease would push growth below the levels of last year. The IMF is to offer a $50 billion dollar emergency fund for countries hit by the virus.
In the OECD's base case scenario, a short lived outbreak, would suggest global growth would slow to 2.4% this year from a previous estimate of 2.9%. In China, growth is expected to fall to 5% this year, from 6.1% last year. Eurozone growth could fall below 1%, a similar scenario, would develop in the UK.
A longer lasting and more intensive outbreak, spreading through Asia-Pacific, Europe and North America could cut growth to 1.5%, the OECD claimed. So what's the outlook ...?
The number of cases of Coronavirus is set to hit over 100,000 this weekend. The good news ... data from the World Health Organisation suggests the crisis has passed in China. The number of cases has dropped to 140 per day compared to 4,000 at peak. The data suggests a 12 - 13 week cycle for the outbreak with a 1% infection rate and a 3.7% adjusted mortality rate. [See our "Say Goodbye to the God of Plague" Chart Update below]
60 million people in the Hubei confined zone presented 68,000 cases and resulted in just over 3,000 deaths. The adjusted mortality rate is less than 4%. Higher than flu perhaps but with a much lower infection rate per 000 of population.
Cases outside of China are highest in South Korea, Italy and Iran. The next week's data will be critical in determining the pattern of expansion. In China, the economy is slowly returning to normal, assuming no secondary wave appears.
In the UK we are moving into the "delay phase". If only we could move winter flu into the warmer summer months. Advice appears to be wash your hands regularly and rinse your mouth with alcohol, preferably vodka. "Nothing to fear but fear itself" was Roosevelt's warning ahead of the Great Recession. Analysis of the data from China would help ...
Fed Slashes Rates ...
In the US the Fed slashed rates by 50 basis points this week. The move planned to ease the crisis in the U.S.A. With just 150 cases reported by the weekend, the Central Bank appears to be moving well ahead of the curve.
Pressure from the White House may have pushed the move. The President was urging action to cut rates in view of the threat of Covid-19. The "Democratic Hoax" Trump claims, assisted his monetary agenda.
For Trump, The 50 basis points is not enough. A further cut would be preferable as zero or negative rates loom. US ten year bond yields fell to 0.7%. Life on Planet ZIRP just became a little weirder.
"The Fed is panicking", claimed Bond King Jeffrey Gundlach. "Once the Fed does a panic cut between meetings, a further cut is likely to follow". "Short rates are headed to zero with a further cut now possible when the Fed meets later this month" the claim.
And yet it was all going so well. The American economy was accelerating, at least since the outbreak began to spook markets. Non farm payrolls increased by 273,000 in February. The number was well ahead of the 175,000 expected. The data for previous months was revised up, bringing the three month average to 254,000 jobs.
The unemployment rate fell to 3.5%. Earnings increased by 3%. The U.S. economy is set to grow by over 2% this year. It is a strange time to slash base rates and push long rates lower.
Markets are unconvinced by the move. Traders have little faith in the ability of central banks to protect economies from disruption. No wonder as travel plans are hit and consumers ease back on spending. The travel and leisure sectors badly hit.
Uncertainty on how far the coronavirus will spread and the impact it will have on the economy is pushing the move away from equities. Gold prices moved higher closing at $1,667. Oil prices Brent Crude moved lower, closing below $46 dollars per barrel. Hand Gel prices on Amazon have reached an all time high ...
Economic Data Bounces ...
In the U.K., the latest PMI data suggests manufacturing activity is increasing, despite some concerns about supply chain disruption.
Construction activity increased in February. The composite index jumped to 52.6 in February compared to 48.4 prior month.
Renewed momentum in the housing market, has led to an increase in housing starts. Companies reported the strongest rise in new orders since December 2015.
The service sector recorded a further increase in business activity in February, albeit down slightly from the high levels recorded prior month. The rate of expansion slowed as the shadow of the coronavirus loomed. Bookings and delays to new projects in Asia featured in the slow down apparently.
Business confidence remains high. Political uncertainty has been eliminated for now. Brexit challenges remain. Problems with recruitment and immigration will persist.
It will be interesting to see what the new Chancellor has in the Red Box next week. Delays to infrastructure spending may well feature ... as the fears for the economy develop.
That's all for this week, have a great weekend. We will be back with more news and updates next week.
The number of cases of Corona virus increased to 83,652 yesterday. The increase day on day was 1,352. The China case load increased by just 331. The number of cases in the rest of the world increased by 1,027.
Barring a herald wave, China appears to be saying goodbye to the "God of Plague". As in Mao Zedong's poem in 1958 ...
"The Spring wind blows amid profuse willow wands, we ask the God of Plague, where are you bound?"
Japan, Korea and Northern Italy appears to be the answer. The greatest case acceleration is in Korea and Italy. In the UK plans are under preparation to allow schools to increase class sizes and to use Hyde Park as a morgue. With just 16 cases reported to date, the preparations may appear to be just a little premature. The mortality rate, using the data within China, appears to be around 3.5%. Mass burials in London are unlikely any time soon.
Markets experienced a greater slaughter this week. The Dow was down by 3,500 points, almost 12%. The NASDAQ and S&P fell by 10% and 11% respectively. It was a similar story in Europe. Leading indices in the UK, France and Germany were off by almost 12% in total.
In the East markets were more sanguine. Chinese equities, were up slightly in the month and Hong Kong stocks held firm. Commodity prices including Gold, Copper and Oil came under pressure. Sterling closed lower against the Dollar and the Euro.
So what happens next? My reading this week, included a revisit to Galbraith's "Great Crash of 1929" and Laura Spinneys "The Pale Rider: The Spanish Flu of 1918 and How it Changed the World". The Spanish Flu claimed over 50 million lives. The Great Crash led to the Great Depression of the 1930s.
We ask of the markets "Where are you bound"? Some consolidation was expected following the bull run last year. NASDAQ appears to be still a little over extended. This is no great crash, and Covid-19 is not the Spanish Flu. The outbreak will bring tragedy to some families and this is to be regretted.
Containment of 60 million people in China confined the infection to just 0.125% of the population. Fears of a mass outbreak in the UK with a population of 67 million would appear to be wide of the mark.
Data from the World Health Organization Daily Situation Reports. My thanks to Laura Spinney and The New Statesman for the reference to the God of Plague.
Cummings and Goings ...
Sajid Javid delivered his resignation speech from the back benches this week. The plan to merge the advisory teams within Number Ten and Number Eleven were not in the national interest he claimed.
The requirement for the Treasury teams to speak truth unto power would be undermined by the move. Ministers should have the right to appoint their own team of special advisors he stated.
"It has always been the case, that advisers advise, ministers decide and ministers decide on their advisers."
Javid found the terms of continuance unacceptable. In his resignation letter he had told the Prime Minister, "it is important as leaders, to have trusted teams that reflect character and integrity". This was a veiled hint at the perceived shortcomings of Dominic Cummings.
Javid will forever be known as the CHINO chancellor who never had the chance to deliver a budget. This week, he made some headway, challenging his successor to stick within the fiscal rules but also to cut taxes. His own plan would have been to cut income tax by 2p in the Pound, reduce stamp duty and to introduce generous reliefs for capital investment.
In a clear message, "A huge signal for working people that government was on their side" Javid explained, he intended to reduce the basic rate of income tax from 20% to 18% and to set an ambition to cut it to 15% by the end of parliament.
The cuts costing some £10 billion a year, rising to £25 billion within five years would be added to the additional £100 billion of current spending already announced by the Prime Minister and the further plans for an additional £100 billion of fixed capital investment on infrastructure.
"I very much hope the new Chancellor will be given space to do his job without fear or favour and I know my right honourable friend for Richmond (Rishi Sunak) is more than capable of rising to the challenge".
He obviously felt the new Chancellor of the Exchequer needed a little help along the way. This year borrowing is set to increase to around £44 billion. The IFS has warned the increase in the next financial year will be almost £60 billion.
The revision to tax and spending plans will call for greater creativity in defining as set of fiscal rules to accommodate profligacy and prudence. It remains to be seen if Rishi Sunak is truly capable of rising to the challenge ...
That's all for this week, have a great weekend. We will be back with more news and updates next week.
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.