The US and China offer a stark contrast in their approach for dealing with Covid-19. China exerted tight control over its citizens, stifled the virus and is now benefitting from a return to ‘normal life’. Adroit use of technology helped too. In the US, it is not just Trump supporters who are pushing back against Covid-19 restrictions. In California, corporate leaders are complaining of ‘inconsistent guidance’.
The UK and much of Europe have fallen mid-way between these two extremes. The UK in particular has been stop-start, with the Government under pressure to lock down yet again. It is a similar story in Germany. The FTSE 250 and the STOXX 600 are both well down for the year.
Each government has a different approach reflecting the core values of its citizens. But the debate over herd immunity, ignited this week in part by the Great Barrington Declaration, will run and run.
For sure, extended lockdowns are doing untold damage to public sector finances. In the UK, the Chancellor has been forced yet again to extend job support schemes, despite reservations: he has rightly warned that the ‘books will have to be balanced’.
QE has given governments the licence to spend with impunity. Central banks are urging governments on from the side-lines. Jay Powell has called for ‘more economic aid’. The San Francisco Fed has weighed in on the debate, claiming that the $600 unemployment supplement did not deter job searches.
However, just as some scientists are debating the merits of ‘endless lockdowns’, investors will question the wisdom of never-ending ‘emergency, stop-gap fiscal funding’. A clean sweep by the Democrats will be a negative for Treasuries.
Summary
• US stock market adept at picking winners
• And marking down losers
• Clean sweep for Democrats a negative for Treasuries
