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.
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.