Market Overview

18 mai 2020

Have You Got a Great Plan, Mr. Trump?

Both the European stock exchanges and the US futures on S&P500, Nasdaq and Dow Jones stock indexes opened higher and are trading further in positive territory. Sources of such nice market performances today provided numerous good news from the antivirus front.

First, the California-based Sorrento Therapeutics biotechnology company claimed a breakthrough on a COVID-19 medical war by saying its experimental antibody candidate medicament showed great potential in blocking COVID-19 infections in pre-clinical studies. Its samples state "100% inhibition" of the COVID-19 virus population in just a period of four days. Now they are planning to "generate an antibody cocktail product that could act as a "protective shield" against the coronavirus infection, but there are still long clinical trials ahead.

Sorrento said the full results from its preclinical experiments would be "submitted to a peer-reviewed publication shortly." It would ask regulators for "priority evaluation and accelerated review" of its antibody candidate. The company added that it hopes to receive government support and partner with a pharmaceutical company to scale up manufacturing of its candidate if clinical studies find it to be successful. By the way, Sorrento Therapeutics share prices soared as much as 244% on Friday, while its market capitalisation surged from $549 million at Thursday's close to roughly $1.9 billion at some intraday highs.

Further, Italy is going to restore the regime of free movement with EU countries from June 3, Prime Minister Giuseppe Conte confirmed. EU citizens could move without an obligation to pass a quarantine for those who arrive in Italy, and this may create prerequisites for the partial tourism recovery. When Italy, as one of the most affected countries, is trying to open up its internal European borders most other neighbouring countries are in no hurry to follow its example. "The opening of borders in the Schengen area should be coordinated at the EU level," the French Interior Minister Christophe Castaner reacted to Italy's announcement. The European Commission last Wednesday also called for a coordinated and "non-discriminatory" opening of internal borders in the EU as the epidemiological situation improves. But a sense of competition for tourist flows and the need to make up for the losses of national businesses could speed up the process that the Italians launched.

The last in turn, but the most significant addition to the positive factors, is the highest level of determination of US President Donald Trump to leave behind the period of quarantine soon. Mr Trump is clearly not ready to allow some governors or his other opponents to indulge him in possible returning back to the severe restriction orders later. But, he is eager to open up more and more areas for the largest Western economy and more opportunities for its citizens based on personal responsibility, social distancing while working and living in new normality.

At a large press conference that the US President held in the Rose Garden near the White house on Saturday evening, he boasted abroad the nation's successful steps on vaccine development. Mr Trump narrated a detailed story on how a group of scientists at the National Institutes of Health (NIH) began developing the first vaccine candidate on January 11th already. "On January 11th - think of that - within hours of the virus's genetic code being posted online... Most people never even heard what was going on January 11th. And we were out there trying to develop a vaccine, not even knowing what we were up against," he remarked. This was followed by a description of a program called Operation Warp Speed, the essence of which is to create an entire extensive industrial, logistics and financial infrastructure under the command of high-ranking military personnel for a very fast and large-scale production of the effective vaccine as soon as it is on the way and passes the final tests.

Operation Warp Speed's chief scientist will be Dr. Moncef Slaoui, a world-renowned immunologist who helped create 14 new vaccines in ten years during his time in the private sector. Scientists are still working on a dozen different vaccine candidates, and everything would be already prepared in advance for the vaccine distribution to the population, presumably by the end of the year. "We're looking for a full vaccine for everyone that wants to get it. Not everybody is going to want to get it," Mr. Trump added, apparently responding to the concerns of part of society about the chances of compulsory or obligatory vaccination. "When a vaccine is ready, the U.S. government will deploy every plane, truck, and soldier required to help distribute it to the American people as quickly as possible," the US President said.

But a very important signal to the economy was given by the Mr Trump's following words: "I just want to make something clear. It's very important: Vaccine or no vaccine, we're back. And we're starting the process". His speech made it clear that even if there is a second wave of infections in one form or another, he is not going to wait for a vaccine or rely on the introduction of a new quarantine: "In many cases, they don't have vaccines, and a virus or a flu comes, and you fight through it. We haven't seen anything like this in 100-and-some-odd years - 1917... people sometimes, I guess - we don't know exactly yet, but it looks like they become immune, or at least for a short while, and maybe for life...Many of us have lost friends. We read about that and we see that, and that's what the news covers, but a very, very small - it's a very small percentage. It's a very, very small percentage. I say it all the time: It's a tiny percentage. The vast majority, many people don't even know they have it... they have sniffles or they have a very minor sign and they recover. Not only recover, they probably have immunity, whether it's short term, long term... And I think people have to understand that. That's why I think the schools should be back in the fall. I think that lots of things should happen. We want to see our country start to work again."

The reporter of one of the media tried again and again to return the American President to the issue of the danger of social communications, citing the example of schools: "Mr. President, are you at all concerned about children or teachers who are in the school bringing it [infection] home to their families, their spouses, their grandparents?" Mr. Trump has fended off by replying: "I'm concerned about everything, and I'm also concerned about our country. Our country has to get back. And, you know, what you're talking is - when you are doing what we did with the shutdown, that causes death also. It causes massive depression. It causes drugs. It causes suicide. It causes a lot of problems also. No, our country has to get back to work again... Our people want to get back."

And the question: "Sir, do you have a plan to prevent the spread if you... reopen the schools?" was answered by Mr Trump in his specific manner: "We do. We do. We have a great plan to prevent the spread, but that doesn't mean we're going to close our country for five years. Okay? Not going to happen." Perhaps, this was the key moment of the press conference, and the next question of the same kind the American President simply ignored with the words: "Go ahead".

Of course, the above skirmish between the American President and a journalist slightly resembled a monologue in the form of a dialogue from the Australian-produced famous cartoon "Around the World in 80 Days", themed on the novel by Jules Verne. Mr. Fix from the 1972 cult cartoon, who tried to prevent Phileas Fogg from circulating the world in 80 days, clearly had a split personality, asking himself and answering himself: "Have you got a plan, Mr. Fix?" - "Have I got a plan, Mr. Fix? Have I got a plan? Of course, I've got a plan, Mr Fix!" But, unlike Mr. Trump, the cartoon character of Mr. Fix always confided at least to himself aloud all the details of each of his brilliant plans. In the case of Mr. Trump, he limited himself to saying that he has a great plan to prevent the spread of the virus without giving away too many details about how it will be done. So it's more like following a recipe from Phileas Fogg: "Learn to use what you have got, and you won't need what you have not."

Whatever the case, Mr. Trump has a very strong determination never to return to quarantine again and to deliver vaccine finally but to rely now on the natural course of events in the future. Economically speaking, this immutable fact removes a large layer of fears about a second wave of decline in the economy and markets. So far, these considerations have even prevailed over the Federal Reserve Chairman Mr Powell's words as he said to CNBC on Sunday that the US gross domestic product (GDP) could shrink more than 30% and that jobless numbers may look a lot like they did during the 1930s, when the rate peaked out at close to 25%.

Instead, markets have so far focused on the second part of Mr Powell's message that the economy will avoid a Depression-like economic plunge over the longer term. When asked on whether the US is headed for a "second depression," Mr Powell replied: "I don't think that's a likely outcome at all. There're some very fundamental differences," and then he added growth could return in the third quarter.

At least until new leaks or official "revelations" come to light, or any other real changes in the current situation happen, the markets may be more complacent for a while, and they may be inclined to rise further. Potentially negative scenarios could include US-Chinese trade disputes or possible attempts of US authorities to "punish China for the virus". Supply restrictions for Huawei by American regulators or the various threats of retaliatory "black lists" of American companies prepared by China does not seem to be a sufficient disturbing factor for now to the markets. The mood of the American establishment seems to have been expressed again by President Trump, who said only: "I don't want to talk about it [considering re-imposing additional tariffs on China or tearing up the deal in any other way]. I can say China is buying a lot of our product. But the trade deal - the ink was barely dry when this came in from China. So it's not like we're thrilled." But he did not elaborate further on the subject.


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