Rabobank: “Imagine If The Covid Vaccine Doesn’t Work And This Is Our Future”

By Michael Every of Rabobank

A Fistful of Conneries

Here we are nearly a year into the Covid-19 crisis, and even G-7 economies are still at sixes and sevens about what to do. For example, the Four Nations around the British Isles are looking more like six or seven nations, if not more. Wales has just locked down completely for two weeks so nobody should be leaving their house; Ireland has shut all pubs, bars, and restaurants for six weeks; the north of England seems to have different virus measures than the south, which may be the toughest tier 3 as soon as lunchtime today (this is something one haggles over now); London is also set to go to tier-3 lockdown without being asked; and Scotland has meanwhile already been in its own form of limited lockdown for a while now. What a patchwork it is.

Just to emphasize, a British ‘tier-3 lockdown’ once again focuses energies on the fulcrum of the economy: the pub. No households can mix in or outdoors – which may or may not be enforced; travel in and out of the area is not recommended – though is not being enforced; and pubs and bars not serving meals will be closed (because chewing rather than gulping kills the virus?) – which is being enforced. Except that the government is also saying that business working lunches *can* be held in pub even under a tier-2 or tier-3 lockdown. So all one has to say to the police who tell you to leave is that you are and your mates are “working” while drinking –get your phone out and swipe a bit, why not?– and on we all go. And so does Covid.

Need I add that the British press is as full of opinions about hard lockdowns, soft lockdowns, smart lockdowns, sheltering vulnerable populations, and herd immunity as it was six months ago? And they are still talking about Sweden one way or the other. Imagine if the Covid vaccine doesn’t work and this is our future.

Meanwhile, the British government, either in a pub or not, is still not talking to the EU about a trade deal, which as covered here yesterday is not a surprise: November is when things will start moving again. It is also reportedly working to try to thwart Scottish independence, or so says Bloomberg. More cries of English hypocrisy from some.

More future risk off for markets too, one would think. Recall that in May 2021 the Scottish elections are very likely to open that particular can of worms all over again. On which note, we can expect the issue of what a Scottish currency might have to look like to emerge as a topic of discussion – and which is surely going to be hammered home by Westminster. This is such a serious topic it precludes any serious coverage in today’s Daily: that will come later. Forget about the substantive stuff: suffice to say that even the name of a Scottish currency would be tricky. What could instill enough confidence to replace something that has been around for so long? There is always the Scottish Pound; but how about the pre-Union Merk; or the Bawbee? And can I throw the Connery into the mix? Or maybe it will have to be the Euro? May 2021 isn’t that far away, and these kind of discussions will begin in earnest soon. We might still be under lockdown when they do; but if we go to the pub to talk about it that should be OK. Want to be long GBP as we do?

While there we could also all play US election stimulus drinking games. Pelosi and Mnuchin are apparently edging closer to a deal ahead of today’s self-imposed deadline, two weeks to election day. The Senate Republicans are apparently doing their own thing, however, as usual. Who knows what the outcome of that will be?

Elsewhere, US administration China hawk Peter Navarro gave a speech at the Hudson Institute strong enough in its rhetoric that it could have originated from China’s Global Times. He even used phrases such as “attack dogs” and “useful idiots” several times; and he concluded with a very thinly veiled threat that the US would soon present China with a multi-trillion USD bill for damages stemming from Covid-19. It’s easy to put that all down as the kind of thing one comes out with after spending 30-40 Conneries on a working lunch in a pub; but in the present geopolitical environment, can one be entirely sure? Want to be short USD in the case this is serious?

Indeed, the PBOC left its ‘key rate’ on hold at 3.85% as expected: the spread of that over the Western equivalent remains remarkable. Up to the buyer to decide if this screams strength of weakness or not, of course. On which note, it’s back to the US election again.    

Equally cause for a stiff drink is the RBA’s Kent today giving a speech suggesting rates could go below zero, while the last set of minutes backed the view of another cut ahead in November. Recall Aussie 10-year yields are now below those of the US as the RBA talks about long-end bond buying, and today it said that the government’s AAA credit rating is not more important than the need for fiscal support. RBNZ Governor Orr is of course further ahead of the RBA on the same path. Want to be long AUD and NZD on that basis?