Jonathan Marriott, Chief Investment Officer
So far, during this health crisis, we have broadly seen a policy of lockdown followed by gradual re-opening. However, this week provided a poignant reminder that it is likely to be two steps forward and one step back as we look to re-open all sectors of the economy. Whilst many of us in the UK can now look forward to a pint in the pub in July, Germany recently re-imposed a local lockdown in the district of Gütersloh as the virus broke out in an abattoir. Meanwhile, in the US, cases are increasing at an alarming rate in certain states; however, the political will to impose further lockdown appears diminished.
The US response to COVID-19
For some time now, the US has had the highest amount of confirmed COVID-19 cases and fatalities of any country. In part, this was due to a resistance to implementing an early lockdown, as most of the developed world opted for. Initially, the outbreak mostly affected larger population centres and cosmopolitan cities, which tend to vote for the Democrats. Whilst the situation in New York State was dreadful – where the number of fatalities are still the highest anywhere in the world when adjusted for the population size – the number of new cases is now relatively small, and the curve is significantly flatter.
President Trump hesitated to call for lockdown early on, and adopted measures such as banning incoming flights from Europe resulting in a surge in arrivals. When the economic damage of lockdown became clear, with unemployment reaching close to 15% (which would have been higher had fiscal aid not encouraged firms to retain their staff), the President mocked state governors who kept strict measures in place, and supported protestors who called for lockdown easing.
The decline in daily cases demonstrates that the lockdown measures introduced in early May for the country as a whole show signs of working; however, in Southern states – those held mostly by Republican governors – there has been a significant uptick in the number of cases. Recent news in Texas has been particularly concerning, with confirmed cases quadrupling since the end of May. Some reports suggest that intensive care beds in the Houston area are close to full. The Texas Governor has now announced that new phases of re-opening the state would be paused. Similarly, concerning trends can be observed in the states of Florida, Arizona and California, which has weighed on equity markets over the past few days.
The election outlook
For President Trump, the pandemic came at a very bad time. Prior to the outbreak, his polling had been improving, following the phase one trade agreement negotiated with China at the end of last year, and an economy with the lowest unemployment rate since the 1960s. Trump was aiming to use his economic track record to help his re-election chances in November. His mantra could be surmised as following Bill Clinton's strategist's famous phrase, "It’s the economy, stupid."
Polls indicate that the economy is the main area where Trump outshines his opponent and Democratic Presidential nominee, Joe Biden. By re-opening economies faster, he hopes to put the focus back on his economic prowess, but this appears to have come at the expense of people's health in some states. Whilst this could be blamed on the respective governors, on whom the decision to re-open ultimately lies, Trump's rhetoric has supported Republican governors as they have sought to restore normality in their states sooner than the medical community advised.
At this stage, his approval has declined considerably, with the majority of polls now indicating that Joe Biden is likely to win the election, by an increasing margin. Every election has twists and turns, and given that the outbreak in the South and the West of the United States is still ongoing, not because of a second wave but by a desire to re-open economies faster, the President may find that people's health and lives trump the economy.
Return to Insights
This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Vestra LLP, employees and associated companies for any direct or consequential loss arising from this document.
LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority (FCA).