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This week: Coronavirus – USA; Media and data; Economy and markets.
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Coronavirus – USA
The numbers of confirmed cases in the US, Europe and other parts of the world continue to climb. But testing capacity remains a problem. Because testing is constrained and has stalled in the US at around 100,000 per day after growing through March, we can infer not only that actual numbers differ markedly from confirmed numbers but also that the decline in the daily growth of the latter cannot be fully trusted.
To illustrate, if the US is testing 100,000 on a given day and getting a 16% rate of positives (as has been true recently), that is an addition of 16,000 to the number of confirmed cases. On the next day, if the number of tests is again 100,000, there would be an additional 16,000 of confirmed but the percentage growth would be lower. This is an arithmetic feature that distorts the reality on the ground. A 16% increase drops to 13.8% on the next day, 12.1% on the day after, and so forth.
There is widespread opinion that we may be two to three weeks away from the peak of the crisis in the US, measured as a peak in the number of daily deaths. This may be reassuring on the timeline but is worrying because the number can climb significantly before then.
The best hope in the next month is that seasonality will slow the growth in cases and in deaths, giving us the needed respite to prepare better if another wave comes in the fall.
Media and Data
This period has shown that many in the media are not sufficiently competent at handling data. Using beautiful charts without a solid understanding can easily mislead readers. One often-seen chart in recent days is the number of confirmed cases by country, presented as raw figures. Of course, the US being more populous than every European country shows the most alarming line on those graphs. A more proper representation per capita is shown below. The US per capita figure is well below Italy, Spain and France’s (though it may exceed them in the future). Its rapid growth is due mainly to the situation in New York State, also shown in the chart.
Economy and Markets
Except for people who lost their jobs or are experiencing severe hardship, there is no use stressing over the economy for the first and second quarters of 2020. We know that the numbers are going to be dismal and deeply recessionary. The question is what happens in the third and fourth quarters.
If the virus crisis recedes by June, as most observers expect, the relief bounce in activity coupled with the added stimulus could result in a very large Q3 GDP print, perhaps as high as 8, 10% or higher. Given the general doom and gloom including from many of the more visible market commentators, this big snapback would be a contrarian’s base case scenario, even if felt with middling confidence.
As to Q4, the virus may stage a comeback, but the economy and markets would probably react less negatively as we will be better prepared by then, with more masks, ventilators and a possible remedy.
Regarding oil, we projected in the Wednesday Briefs of 11 March that Saudi Arabia and Russia would eventually come to an agreement. This is still our base case.
Access all Wednesday Briefs here.