Morning Brief – One Step Forward…

Morning Brief – One Step Forward…

Thu 2 Apr 2020

One Step Forward…

As avid observers of financial markets we spend a lot of our waking hours keeping up to date with market sensitive news. It is an important pursuit to stay on top of markets and the source of that news can come from (virtually) anywhere. Over the last couple of years I’ve seen markets light up from headlines emanating everywhere from the London Evening Standard, through to the financial news source, Bloomberg. Whilst everyone is at home self-isolating and concerned by how coronavirus is progressing across the globe, news becomes of even greater importance to our society. With great power comes great responsibility. I recall when Robert Peston was brought before the House of Commons Treasury select committee for his role in precipitating the financial crisis by employing hyperbole and scaremongering.


In this important time I am extremely disappointed to see (sometimes) reputable news outlets publishing similarly unfounded or misleading analyses. I shan’t name names but on Sky News last night I witnessed a chart with possibly the most ridiculous choice of y-axis I have ever seen. My Physics teacher would not have been impressed had I produced such a graph! The graph had been deployed to demonstrate the potential number of infections if the exponential phase of virus spread continued seemingly indefinitely. Yes, a projection about as useful as a spork in a knife fight. If you were interested, Peston, journalist and presumed significant stakeholder in Combe Incorporated, is still at it. Mr Peston has now been brandishing admonitions that the coronavirus pandemic may be “on par with [the] economic crash”.


This morning’s daily brief is intended to serve as an explainer to counteract the global fake-news pandemic! The principle of infection and exponential growth is a simple one. If each person infected goes on to infect more than one other person then the virus growth will be positive and can appear exponential. It follows that if each person infected on average infects less than one other person the virus will be in decline and eventually be overcome. In health studies this measure called the reproduction number (otherwise known as R or R0) and it is important. With Covid-19 R0 was estimated to be around 2.2. To serve as a source of comparison, the R0 for the common flu for example is approximately 1.3). So, at an R0 of 2.2, for every one step forward we take in successfully treating an infected individual we can expect to have already taken two (in fact 2.2) steps back given the spread of the disease that has taken place in the lifecycle of this infection episode. This figure is consistent with a doubling in infected numbers every 3-to-4 days; a pattern that we have seen unfold in the United Kingdom over the past few weeks.


The London School of Hygiene and Tropical Medicine has modelled how it thinks the all-important reproduction rate has evolved since the UK has undertaken social distancing measures. This type of analysis I will concede is incumbered by the scarcity of relevant and timely data. Given the extent of the social distancing measures implemented by the government and the uptake and adherence to those rules it is projected that R0 in the United Kingdom is now 0.62. Given the scarcity of data there is a significant margin for error meaning that the real post-lockdown figure of R0 could be anywhere between 0.37 and 0.89. Wherever we are in that range we can still conclude that the virus is on the back foot already and is therefore receding. So instead of moving backwards in our combat of the virus for every step forward we now take we only take an estimated 0.62 steps backwards. As a nation we are therefore making positive progress towards our target of eliminating the coronavirus. This analysis, apparently not seen by the news agency that will not be named, means that the exponential phase of virus growth cannot be considered endless; the SKY is not the limit for infection.


Following a tumultuous two weeks in Sterling markets, the Pound looks remarkably directionless as markets await evidence of progress (or lack thereof) in the battle against the virus. The Pound has regained some 60% of the value lose against the US Dollar during the sell-off earlier this month. The jury is still out on whether this move is a fleeting retracement or a meaningful correction.




Discussion and Analysis by Charles Porter

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