Oct 12 2020

The Prime Minister is expected to unveil a new system of ‘local Covid alert levels’ on Monday 12th October, which will see different parts of the country placed in different categories dependent on rates of infection, with restrictions being scaled accordingly.

As usual, there is confusion around various aspects of the plan, not least its timing and method of imposition, as some northern cities mooted to be the first to be placed under the most severe restrictions are strongly pushing back against the proposals. More generous salary replacement measures have been called for, with councils threatening legal action.

The announcement comes as the UK’s monthly GDP figure for August underwhelmed with a 2.1% increase, despite the Eat Out to Help Out Scheme and workers returning to offices. This leaves GDP 9% below its peak, as the chart below shows:

If events progress as reported over the weekend, the highest-risk locations could see pubs, gyms, casinos, bookmakers and social clubs shut for at least a month, and up to six months, with bans imposed on households mixing indoors and outdoors, on overnight stays outside their area and on all but essential travel for work or education in or beyond the region.

Pubs and restaurants have taken the blame for the recent rise in cases, though Public Health England data in the chart below shows that very few ‘clusters’ over the past month have been attributed to the sector, with pub operators also emphasising how few contact-tracing requests they have had from the NHS. By contrast, there has been a surge in cases related to education establishments, and particularly universities where there have been well documented outbreaks:

The Government is still basing its measures on infection numbers, but this reliance on daily, backward looking data is leading to more anxiety and endless new or reimposed restrictions.

What is surely more important is the severity of those cases. This is, unfortunately, very difficult to fully ascertain given the imperfect nature of the underlying data, but as we have written here before, what data we do have is abundantly clear in pointing to those who are most at risk from the virus and therefore what government measures should be looking to protect.

An Office for National Statistics report on deaths involving Covid in England and Wales to June 2020 shows that one or more pre-existing medical conditions were present in 91% of all cases, with dementia and Alzheimer’s the most common, while to the end of August across the UK, nearly 90% of all Covid-related deaths were in the 65+ age category, with the 0-44 age category accounting for just 1% of deaths. The average age of those who have died from coronavirus in England and Wales stands at 82.4 years old.

Hospital inpatient numbers are rising, though not exponentially, but again the lack of data granularity means that we do not know who is being admitted and what for. Further, there is a rising problem in hospital-acquired Covid cases; the Oxford University’s Centre for Evidence Based Medicine found that for the most recent date of reporting on 6th October, over 18% of Covid hospitalisations in England were being diagnosed after over seven days in hospital; i.e. these patients are likely to have caught the virus in hospital. This figure rises to 24% in the North West hotspot and is an obvious danger when hospitals are admitting both Covid and non-Covid patients.

Viewed in this context, the focus on hospitality as a virus transmission vector seems somewhat misplaced when much more could be done to minimise infection amongst the most vulnerable in hospitals and care homes. Indeed, the World Health Organisation’s Special Envoy on Covid-19, David Nabarro, spoke strongly against lockdowns as a strategy in an interview last week, stating that ‘we at the WHO do not advocate lockdowns as the primary means of control of this virus’, going on to say that the only time they would be recommended is as a mechanism to regroup and rebalance resources, and commenting on the economic and societal damage they cause.

Away from coronavirus, a trade deal between the UK and the EU remains in the balance after a weekend of diplomacy saw Boris Johnson call the leaders of both France and Germany. Conversations reportedly focused on the politically (if not economically) sensitive issue of fisheries, with talks set to continue in Brussels at least until Thursday 15th’s EU Council summit.

In markets, equities rose strongly as Donald Trump overcame coronavirus but also saw his polling deficit to Joe Biden increase. The latter currently enjoys a 52-42% split on an aggregated polling basis, with market participants seeing this as positive in relation to the provision of further, substantial fiscal stimulus. This saw the US Dollar trending downwards again against most currencies; particularly against more economically sensitive markets, leading to strong gains in emerging market regions and the UK.

The FTSE 250 rose by 3.93%, outperforming the FTSE 100 (1.95%) as the Pound strengthened against the Dollar, while Latin American equities – one of the worst performing regional indices this year – rose by 5.36%. US equities still posted their best weekly gain since July with 3.39%, ahead of European and Japan equities.

Fixed income safe havens were understandably weak in this risk-off mood, with UK Gilts and Index-Linked Gilt benchmarks falling by 0.45% and 1.33% respectively, while riskier credit markets rose. Gold and silver prices were muted until the end of the week when they rose strongly; silver ended the week up nearly 4%, and gold by 0.5% in Pound terms.

The Q3 2020 corporate earnings season has just got underway amidst a backdrop of heightened expectations after somewhat shallower troughs and faster recoveries. The US election is likely to dominate the headlines alongside coronavirus over the next few weeks at least, with any indications of further stimulus packages in the US likely to help risky assets move upwards. While we have learnt over the past few years that polls cannot be taken at face value, it looks increasingly likely that we will see a Democrat President after November 3rd, which should be positive for equities moving forward.

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Andrea Barker
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