by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Our Daily Comment today opens with what we know about the U.S. elections so far (naturally, it’s very little).  We also review a few key news items from overseas, including a terrorist attack in Vienna.  We wrap up with the latest coronavirus news.

U.S. Elections:  Well, we’ve finally made it to Election Day, with no major civil strife or surprise political bombshells (so far).  That probably comes as a relief to investors, many of whom were probably fearing the worst.  The relative calm in recent days helps explain the surging stock market yesterday and so far today.  However, the real test may well arise over the coming week or so.  As a reminder, the huge volume of mail-in voting will almost certainly make the counting process drag out longer than we’re all used to.  But then, it’s also not rocket science.  Mail-in voting is a common, well-established process across the country and has been used for years.  Disputes and recounts happen, and they’re manageable.  Take it from a former campaign manager who won an election on a recount (This is Patrick speaking: it was a Montana state senate race in 1980, just after I graduated from college, and my candidate won by seven votes!).  We will get through this.  We just hope people show patience in the coming days so that the worst-case scenarios don’t happen, and the financial markets can remain calm.

• As of yesterday evening, almost 99 million U.S. citizens had already cast ballots either in person or by mail, equivalent to 72% of the entire 2016 vote and enough to put the country on track for a record turnout.
• Despite the relative calm so far, many retailers have boarded up their stores to prepare for possible violence, and temporary fencing was erected around the White House.
• Several publications are offering guides to the voting process and what to watch for.  Here is one from Politico.
• Federal, state and local governments are on high alert for false narratives aimed at discrediting electoral outcomes if key states take days to tally votes. Election officials say they have spent recent weeks finalizing plans to monitor and combat such campaigns, while social media companies are shoring up policies to limit the spread of such disinformation.
• Even though investors are snapping up equities, they are also bracing themselves for sharp swings in major currencies in the immediate wake of the election.  Measures of hedging activity are soaring to their highest level on record for currencies like the euro, the yen, and the renminbi.

 India-Pakistan-China:  The Pakistani government said it would formally integrate the disputed Himalaya mountain territory of Gilgit Baltistan, which Pakistan controls but India claims.  The Pakistanis offered assurances that the territory would only be annexed provisionally until the broader territorial disputes in the Kashmir region are resolved, but the Indian government immediately decried the move.  The Pakistani initiative has long been urged by China, which has also been trying to seize disputed Kashmiri territory from India since early summer.

France-United Arab Emirates-Turkey:  The UAE’s Minister of State for Foreign Affairs, Anwar Gargash, slammed Turkish President Erdogan for his criticism of French President Macron and his complaints about “Islamic separatism” in French society.  The minister’s pushback underlines the friction Erdogan is causing with his sharp efforts to make Turkey a player in the Middle East and in global relations with Islam.

Austria:  One or more Islamic extremists have carried out a terrorist attack in Vienna that left at least four people dead and over a dozen wounded.  Police say they have cornered and killed one attacker in the shooting spree.  He was identified as an Austrian citizen of Macedonian background with a prior terrorism conviction.

COVID-19:  Official data show confirmed cases have risen to 46,997,320 worldwide, with 1,208,224 deaths.  In the United States, confirmed cases rose to 9,293,589, with 231,566 deaths.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• New confirmed U.S. infections totaled more than 89,000 yesterday, lifting the seven-day moving average of new infections to 78,738 and the 14-day moving average to 70,994.  Daily virus-related deaths also continue to trend higher, with 908 reported yesterday.  Just as important, hospitalizations are also rising to the point where some hospitals in the U.S. and abroad are starting to become overwhelmed.
  • One decent analogy for the pandemic is that it’s like a natural disaster, with all the unpredictability and confusion that implies.
  • However, another little-discussed analogy is that it’s like a biological weapon attack.  The biological weapon analogy isn’t meant to emphasize China’s role at the outset of the crisis.  Rather, the issue is that the goal of a biological weapon attack is to overwhelm the adversary’s health system in order to increase unnecessary death, sow discord, and undermine confidence.  In the crisis to date, overwhelmed health systems, or the threat thereof, did contribute to government decisions to impose harsh economic lockdowns.  In the new wave of infections, the threat of overwhelmed health systems again seems to be prompting new lockdowns.  Rising hospitalizations could be an early indicator of new lockdowns that might push down economic activity and financial markets once again.
• In a confidential memo to Trump administration officials, White House coronavirus response coordinator Deborah Birx has warned that, “We are entering the most concerning and most deadly phase of this pandemic.”
• European governments beset by an autumn wave of new infections are turning to Chinese-style mass testing to identify carriers who need to be quarantined.  In the Slovak Republic, Prime Minister Igor Matovič said the weekend’s mass testing exercise successfully tested a total of 3.6 million people over the age of nine, or 95% of the targeted population and two-thirds of all residents.
  • The swabs were officially taken on a voluntary basis, but without a negative result, people were banned from their workplaces.
  • The tests show 1.06% of the Slovak population is currently infected with the virus.
• As the world now approaches one year of the virus and tens of millions of infections, our understanding of the virus continues to evolve.  In contrast with the initial months of the pandemic, when COVID-19 was primarily seen as dangerous for older victims, it’s now becoming clear that males are especially susceptible to death from the virus across almost all ages and countries.  Scientists are now trying to figure out whether that’s because of uniquely male biological differences, greater comorbidities like obesity or high blood pressure among males, or differences in male behavior, like greater reluctance to practice good hygiene or wear a mask.
• According to a British study of 100 healthcare workers who got COVID-19 early in the pandemic, the coronavirus induces strong and long-lasting cellular immunity after infection.  The research suggests people are unlikely to quickly catch the disease more than once.  It also increases the likelihood that vaccines will be effective.

 Economic Impacts

• Although the pandemic has undermined demand for a range of refined petroleum products, adding important new headwinds to energy stocks, it’s now becoming more clear that things look relatively better for shale drillers focused on natural gas.

 U.S. Policy Response

• With the White House and Congress still at loggerheads over a new pandemic relief package, the Treasury Department has ratcheted down its estimate of federal government borrowing during the fourth quarter.  The department now estimates the government will borrow $617 billion from October through December, down from its $1.216 trillion estimate in early August. Senior officials said they continue to assume that Congress eventually will pass another economic relief package with about $1 trillion in new spending—the same assumption they made in August—but that much of that borrowing would likely be pushed back to early 2021.

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