Just one week ago, as Dr. Anthony Fauci was cranking the Delta variant "fearmongering" up to 11 once again, JPM's Croatian quant Marko Kolanovic was telling the bank's clients that a looming inflection point for new cases in the UK (widely seen as a leading indicator for the direction of new cases in the US) would soon arrive, kick-starting demand for value stocks and reopening plays.
Althought Kolanovic is a Wall Street quant, not an epidemiologist, it turns out his view was correct. Because one week later, the number of new cases being confirmed in the UK and EU has fallen, even as the UK's "Freedom Day" has come and gone. Deutsche Bank's Jim Reid described the decline in new cases in the UK "nothing short of remarkable".
According to Reuters data, the number of new cases fell for a sixth consecutive day, to 24,950 on Monday from 29,173 on Sunday. The total number of new cases over the past week, at just over a quarter of a million, is more than 20% lower than the prior week.
While the UK's economy-crippling "pingdemic" continues, and many have continued to isolate, meaning the UK is still a way's away from achieving a return to "normality".
Additionally, despite the fast rise of cases to near peak levels, mortality is currently 95% lower than during the January peak. This should give confidence to investors that delta is not a serious threat to global growth. If the US follows the template of the UK, daily cases might be peaking in the next 12 days...while we think Energy-Epicenter stocks are going to start to rally beginning this week.
While the Delta variant continues to dominate "our discussions with clients," Kolanovic claimed that fears about the variant are overblown. The UK, he added, appears to be following a timeline similar to what the world saw in India. This should give confidence to investors that Delta isn't a serious threat to global growth. Well, that and the drop in mortality. Speaking of markets, Kolanovic suggested that this is the start of a rotation into cyclicals.
Some might be tempted to attribute the drop in UK cases to a fluke, or the pingdemic, or some other factor. But as Kolanovic reminds us, the trajectory of India's recent COVID flareup (the first national outbreak to be caused by the delta variant) was similarly swift, as JPM illustrates with a handy chart.
The main thrust of Kolanovic's latest note is that markets - particularly bond markets - are too fixated on the potential economic impact of the Delta variant. Given the strong correlation between cases and vaccinations, BofA adds that economic risks for heavily vaccinated countries like the US - despite the Biden Administration's warnings about a "pandemic of the unvaccinated" - remain low.
The disparity can be seen quite clearly in a pair of charts from a recent BofA note: just look at the difference between the vaccination rate for the UK, and its attendant impact on virus-related mortality...
...and Indonesia, which has an adult vaccination rate well below 10%.
Analysts at Goldman have reached a similar conclusion: while rising cases may lead to more cautious consumer behavior, we ultimately view the economic and medical risks from the delta variant as manageable, given convincing evidence that the vaccines help prevent serious illness.
The implication for the US is pretty clear.