Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
This week the UK approved Pfizer’s vaccine for widespread use. The UK has ordered 40 million doses, or enough to vaccinate 20 million people. Goldman Sachs had already been forecasting that the UK would be the first country to inoculate 50% of its population by March 2021.
Vaccinations To begin In UK
The aim is to start vaccinations next week. What happens over these next couple of weeks – with regards to the logistical operations, population take-up and side effects – will be a very good indicator for the reliability of the global forecasts on the pace of vaccinations and targets for herd immunity.
The UK has already set out its priority groups for the vaccine rollout. The first four groups account for all people over the age of 70, or roughly 80% of total COVID deaths to date. Therefore, vaccinating this vulnerable cohort should bring the daily death count down significantly. The UK has purchased enough Pfizer / BioNTech vaccine doses to inoculate these four groups (roughly 9 million people) in addition to the 1 million people who work in the National Health Service. All of this suggests that, contingent on the distribution of vaccines, the most vulnerable will have been inoculated by mid-February 2021.
Boost To The Economy
The rollout is also critically important for the UK economy. In a study conducted by Goldman Sachs, it was shown that amongst the major economies the UK has the highest share of its consumption basket which is vulnerable to social distancing. Therefore, the UK economy has been hit very hard by lockdown measures and if a vaccine rollout is indeed successful this will be a big boost for the UK economy relative to other major economies.
The market will also watch the latest Brexit developments closely. Currently, investors are prescribing a 70-80% probability that the European Union and the UK will agree on a free trade deal.
A return to the glory days described by Tolstoy is unlikely. But if there is a Brexit deal and good news on the vaccine rollout over the coming months, it might help lift the funk that has been hanging over the UK since the Brexit vote in 2016. This would be good for domestic UK equities and sterling.
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