After Lockdown, be prepared for Yard time

Does reopening mean recovery? The answer is no, and the reasons are not of economic nor financial nature.  The general population in the majority of the developed countries went through at least 6 weeks of lockdown with various levels of confinement. The rush for a quick and full reopening does not take into account the social, mental and psychological changes that occurred during this period. The fear factor is amplified beyond doubt within every person. The experience of correctional facilities shows that hitting the yard after significant periods of lockdown rarely ends up quietly. The accumulated stress juxtaposed over the fear of a second wave of infection could unleash much tension in society and skew the interactions between people.

How can this impact the economy? A services-based economy is highly dependent on the capacity to build trust throughout inter-human relationships. When this capacity is lost, so is the turnover of the economic exchanges. A simple example is the US-China relationship that is at a historic low. With the current state of affairs, the trade between the two countries is far from seeing any sign of recovery.

The current estimation shows that in the last quarter, the US economy contracted by 5% and the Chinese economy by 10%. The US unemployment is currently growing through the roof with an additional 3.8 million jobless claims climbing to a total 30 million. The Chinese economy needs American demand to restart, demand needs strong financial markets, and the financial markets need strong numbers from China. It is a vicious circle. The panic inoculated during the lockdown could easily resurge during the reopening and hinder the economic recovery.

The mystery of human existence lies not in just staying alive, but in finding something to live for.
Fyodor Dostoyevsky, The Brothers Karamazov

Market overview

Listening to the sound of silence

The CBOE Volatility Index followed a descending path after reaching a peak at 85 in mid-March. Over the past 6 weeks, the market turmoil calmed down amid lousy news on all fronts. The world-leading economies are shutdown, the perspectives for a quick recovery are uncertain, and yet the Dow has the same level it had in 2018.  The market seems to ignore the unrest in the real world and appears to be waiting for some divine sign. When markets do not reflect all information in price, and there are efficiency breaches, we can expect significant jumps. In the majority of the cases, the jump consists of a double-digit dip.

Bitcoin

Mining reward is halving, while price is doubling

In mid-March, many were those talking about the end of Bitcoin. Since then the price of the leading crypto-currency almost doubled and flirted this week with the 9000 USD resistance level. Bitcoin went through a period of significant correlation with the stock indexes, but a decoupling appeared towards the end of April. It is an encouraging sign because the perspectives on the stock market are gloomy and Bitcoin needs to continue to move north, with the halving event approaching.

Pharma focus:

Battles without honor and humanity

With the reopening planned in the second part of May, finding the best treatment against the new coronavirus became a matter of urgency. The war of drugs entered a new phase: the conquest of the market. The hydroxychloroquine seems to have the upper hand. India, the world's leading producer of hydroxychloroquine, has already shipped 50 million tablets to the United States, although the FDA warned the anti-malarial drug might have harmful side effects in the treatment of COVID-19.

Cadila Healthcare is one of India's top producers of hydroxychloroquine, and with the current high demand, its share price gained more than 20% since the beginning of the pandemic.

Meanwhile, Gilead's Remdesivir goes through an accelerated test phase with the Food and Drug Administration.  Gilead is already expanding its production to be able to make 140000 10-day courses by the end of May, and 1 million by the end of 2020. Gilead stock is still in positive territory since the beginning of the pandemic and is doing better than the big pharma stocks. The FDA approval could boost the share price, as it would open Remdesivir to a few billion dollars in revenue over the next months.

Market outlook

As predicted the Bitcoin found support at 8000 USD and the Brent recovered some of the losses from the previous week. The Dow Jones is still hanging above 23000, but the likelihood of finding long-term support at this level is low. We expect to see Bitcoin moving into positive territory, and the Brent to progress slowly towards 30 USD per barrel.