Governments are becoming very concerned about the resurgence in virus cases seen since summer. In context, the rise in cases should not be too alarming. More testing means more cases will be found, and the relatively high false positive rate for the most common tests used mean the vast majority of cases are not true positives. Critically, hospitalisations and deaths remain low.
Despite all of this, governments seem to be laser focused on rising cases, and are gearing up to respond accordingly. As long as this is the case, greater restrictions remain a risk for economies and the cyclical-rotation trade.
The UK is heading down this path, yesterday announcing a 10pm curfew on all bars, restaurants and other hospitality venues. Cases are indeed rising, but deaths remain low.
The growth in cases means the daily total is likely to eclipse the peak seen in April. However, this is largely due to increased testing. If we assume the level of testing done today and the prevailing test positivity rate, the number of daily cases found in April would be in the region of 10x higher.
It is a similar story in the US, where the initial peak in April would have been much higher, putting today’s rise in cases in context.
So more cases are being found, but as the general prevalence of the virus remains relatively low, the false positive rate of the tests used means the vast majority of the cases found are not “true” positives.
We use the ONS Infection Survey which randomly samples thousands of English households each week to gain an idea about the general prevalence of the virus. If we use this as the number of “true” cases and compare to the number of recorded cases, we can see the large gap between the two. “True” cases could be as a little as 5% of recorded cases, taking the ONS as a fair representation of virus prevalence.
Nonetheless, “true” cases are rising, but off a low base. If we zoom in on the above chart and use a log scale, we can see that “true” cases are rising at the same rate as recorded ones, but no faster.
Also in England, the rise in recorded cases is not simply due to more testing, as the percentage of people testing positive is rising.
This is not the case in the US at the moment.
So there is a notable true rise in cases in England, but how concerned should the government be?
Spain saw its second rise in cases beginning about three weeks before the UK. If the UK follows Spain’s path, cases should continue to pick up, but deaths should not rise significantly. (Spain’s mobility has remained roughly constant since July suggesting increased restrictions did not have a major role to play in keeping the death rate contained.)
The initial goal of many governments was to prevent hospitals from becoming overwhelmed. While it is not clear whether that goal has changed to “preventing the spread of the disease as much as possible”, it is clear hospitals are not (yet) being pressured nearly to the same extent as they were in March and April.
What is key to watch is if hospital admissions are picking up relative to “true” cases, not relative to recorded cases, skewed by the massive influence of false positives.
This ratio has picked up in England, but not yet alarmingly so.
In the US, again there is little sign the situation is deteriorating. Our proxy for the hospitalisation rate has not been rising, and the number of US states seeing a rise in Covid hospital admissions is picking up, but modestly so.
As long as governments (erroneously in our view) focus solely on case numbers, then economies will remain at risk from increasingly confidence-sapping restrictions. The UK appears to be going down this path. In the US, on the other hand, there is little pretext – even if one were wanted – to tighten restrictions. This means for now the slow-grind cyclical rotation should continue.
The US election will potentially change the dynamics here. Trump has made it quite clear his aim is to prioritise the economy, however Biden has said he would re-impose a second national lockdown if need be.
As we move closer to the election, virus statistics – and how US policymakers interpret them – will become increasingly important for risks to the US economy, and to the cyclical-rotation trade.