Surveillance: New Covid Variant With Pekosz

us for years. It feels like actually it may just be almost years as we deal with this pandemic for a second year, his professor and viroologists at Johns Hopkins University, Bloomberg School of Public Health. We are so lucky to have you here, Dr Pakosh, on the morning where everyone is all concerned about the virus once again. What's your

view into how serious this particular variant is. Well, let me first start by saying all the credit goes to South African scientists and scientists across Europe for not only detecting this, but using social media in a good way to spread all the information that they have about this. We criticize social media a lot about misinformation. This is an example of how good it can be when it

comes to spreading the right information. We know that just before Thanksgiving it became obvious that there was in South Africa a new variant that had an abnormally high number of mutations across its gene but in particular in the spike protein, which is the target for the vaccines that are being distributed globally. Now, Um, what happened recently is that the South African public health officials realized that one of their PCR tests could actually serve as a surrogate

for this variant. And if you use that data, it seems like this five to nine variant is increasing at an incredibly fast pace across areas of South Africa and multiple provinces of South Africa. So that was the real significant piece that caused us to get on everybody's radar screen. Do we even send of how much it evades the natural immunity conferred by prior infection or by some vaccine, just theoretically from looking at the sequence and you could

probably see it right behind me on my desktop here. Um, it has a number of mutations which have been predicted to evade antibody responses. Now it has a few that are conserved, so this won't be a case of something that's completely able to evade the vaccine induced immunity, but it has more than other variants that we've seen so far, which again on paper, is what is concerning to us

and the good morning to you. We're just getting some lines coming through from from beyond Seck, who of course have been working with fins around that vaccine much used around the world. They're just giving us some time scales around what they're going to do next, and I think this is interesting. They expect data from lab tests on the new varias in two weeks that it depending on

that lab data may require vaccine adjustments. That gives us a sense that will we will know then in the next couple of weeks or into the time just how well in a lab environment the Fiser vaccine will stand up to this. Then the real world will be another thing. Absolutely, And that sounds like about the right timeline. As I just mentioned the sequences on my desk right now, emails have gone out to try to get my laboratory group together to try to prepare to do some of these tests.

I'm actually here in the office today doing some of these antibody tests against other variants that we have in the laboratory, So that sounds like the right time frame. I think in terms of the general public, what this serves as an example of is now is the time to actually go out and do something proactive. If you haven't gotten your booster, go get your booster. If you

haven't gotten your vaccine, go get your vaccine. Because by the time this variant becomes a global threat, if it does, um now is the time to act to try to do something to help curve the impact of this variant. So it just serves as a reminder we have tools, we have to use them affect efficiently, and if you haven't been vaccinated, now's the time to get it. If you haven't got your booster, and now's the time to get it to really give you the best tools to

fight off this variant. And I think, what do you take away as a sort of big learning from the way that this this variant has emerged and maybe out there in various parts of the world. We know it's in Southern Africa, of course, we know it's in Hong Kong, and we know it's in Israel, and you know it could be elsewhere as well. We don't know yet. The UK has said it's not here in the UK, but

we'll wait to hear from lots of places. What do you take away, is this all about making sure that we get better distribution of vaccines globally, because that sounds an appealing argument to make, and you can definitely see the humanitarian reasons behind that. But in South Africa, our reporting suggests that they don't have full vaccination, but it's not to do with a lack of vaccine. It's a lack of the right information getting to the right people

to persuade them to go get the vaccine. Absolutely, he had some important points there. I think first it starts with testing. Good testing, couple with sequencing allows for the detection these variants early, and that helps us prepare for these variants. And then to it informs the current public health interventions. As I mentioned, getting yourself vaccinated is the first thing that you can do right now. It may be that we need to reformulative vaccine if this virus

does become dominant in the world. That can be done. We have anti virals on our way that can be utilized effectively. But we have to think about these things as layered approaches to protect us from COVID nineteen. None of them are effective, but combined approaches allow us to minimize the severity of this disease. And again, this variant is going to be another test if it doesn't work globally, of how well we can do the things that we've

already learned can turn the tied on COVID nineteen cases. Well, Dr peck gosh. Less than twenty four hours ago before this news rocked the world, families were getting together all across the US for Thanksgiving dinner. Do you worry about a holiday surge akin to last year? Well, across the US, Actually, we're starting to see signals of a surge even before people traveled for Thanksgiving, and that's even be four. We

have to worry about this five to nine variant. So the data from the U S alone is telling us that case numbers are going up, that going up in regionally very distinct manners. But in some places they are causing um significance train in our public health, on our hospital infrastructure already. So even without this variant being a concern for us, the US cases, we're not doing enough to really limit these cases. And I am concerned that we're going to see another surge of in this case

delta here in the US after the Thanksgiving holidays. All right, Andrew Packash of Johns Hopkins, thank you so much for being with us, especially with the idea that you have rushed to the office to start doing some of these lab tests yourself in order to get ahead of this emergent virus. How much do travel curbs really change the backdrop the supply demand dynamic on ritacent founder and director of Research and Energy Aspects joining us now, I'm rida,

Happy Thanksgiving. Thank you for being with us. What's your sense of how much of a game change the potential entrant of the South African variant could be? Well? Happy Thanksgiving to all of you. Um look, I think this is a huge overreaction in terms of the market. The market is fearing the worst the calculations we've done so far. With all the borders closed globally, we are talking about just fifteen one five thousand barrels per day of lost

jet fueld demand. Um sure Europe could potentially kind of come up with a bigger kind of blanket ban uh for travel to South Africa. Even then, you are talking about a few like ten twenty thod barrels per day

of jet fueld demand. The big roots the trans Atlantic that remains open, that's kind of the biggest driver for a lot of that jet travel, and Asia still reopening, um hasn't really kind of we haven't seen that startups, say between long haul flights between Asia and the pasts of the world, so that's not going to get severe affected to begin with. But look, this is the market pricing in the worst possible scenarios. Where should oil be if this is a blip, if this is something that

is grasp a ball and conquered, conquerable. Excuse me, yeah, I mean, of course there are lots of fis. But like you said, if if it turns out that the vaccines are perfectly effective against this new variant, prices should be about eighty dollars um. You know, the SPR really showed us. We've we've had sixty five million barrels of global SPR release outside of China and prices rarely two dollars. Compared that to when we had Libyan outage sixty million

barrels of SPR, when prices went down ten dollars. It tells you how strong the market is right now, how low stocks are. We've got the Open Plus meeting coming up. If this, if these concerns around demand persist um, it is likely that the group is going to consider pausing output increases anyway, so that roots of floor under prices. But fundamentally we should be above eighty dollars unless demand really takes a hit. So does this So so amry

to just expanding on that. This is the market moves we're seeing here, and the risks to oil demand demonstrated by the by the threat at least of this virus variants. That plays into the opaque argument that there are risks of oversupply for parts of twenty two. Does it absolutely? And this is why your PEG plus have been cautious.

This is why your PEC plus have been very clearly only increasing production by four hundred thousand barrels for their quarters, by four hundred thousand barrels per day, even though the White House and other consumers have been calling for a bigger increase in production. They've been talking about the winter, they've been talking about look there could be potential mobility restrictions,

and their own numbers show really big stock bills. Now, of course, you've had the SPR release which balloons their Q one stock bills further to about three three million barrels.

But now these are way higher than our numbers. But this is why all PEG plus have been cautious, and I think today's move justifies their actions so far and does call into question why the White House and other consumers released spr going into a season which is bound to have uncertainties around demand as we're thinking about things

that could influence demand. I just want to draw your attention tow lines from at the e c B S Louis de Gwyndall saying deceleration sorry, saying that euros On economy has lost some dynamism in the fourth quarter and the deceleration is due to supply bottlenecks and energy costs.

Is there any sense, then, emory to that there's demand destruction has been taking place at these levels above eighty dollars of arrel so I would say, particularly for Europe, it's been higher gas prices more than oil prices that have had a big impact on industry. You have seen industrial demand being cut back, so I think that's where some of the comments are coming from. For sure, Look, the biggest risk to next year is going to be

around the supply chain issues and high energy prices. In terms of the downside risk, we still think in terms of GDP growth or economic growth slowing down. That's more story. But you can't ignore the fact that those are your kind of real bottlenecks going on right now. But regardless, there's so much bent up demand across the world. In Asia is just opening up, so there is a lot

more upside to demand. As long as, again, this variant doesn't prove to be completely it just proves to be the fact that you can't use the existing vaccines against it, then that's a different story. But otherwise demand still has

more upside. And Marina, something that's got lost amid all the talk of this variant and that spr released that was coordinated by many countries is the fact that they're still talking about an Iranian nuclear deal and actually Iran is attending a meeting in Vienna on Monday to talk about it. And we understand from a phone call they had with the EU earlier today that they say a

quicker turn is possible if sanctions are lifted. If that happens, what is the impact of that arounding crewed coming back onto the market. Look, you if if it's a big if I'll come into that second, you're going to get a big pull back rightly. It's it could be ten even fifteen dollars lower. But I will really stress this, Iran has been dragging its feet for a very long time. This is no longer just about the j C p o A. We absolutely don't think you're going to get

a quick resolution. It's going to probably drag on for months, and we don't think Iranian barrels come back to September two with with the whole process of sanctions lifting and um. And the reason I said it's going to be a big drop like ten fifteen dollars potentially is because Iran has about sixty seventy million barrels of oil just sitting there in tankers, and you know that can come out to the market very quickly. So I can see crude in the sixties. But of course they no PEC plus

will act as well I would expect them to. But but equally, you know this isn't an Irun that's ready to do a deal overnight. Yes, there will be a lot of headlines going into r and around this, but the demands that they have are very, very difficult for

Europe or particularly the US to meet. Yeah, I read that's funny that you said that, because my next question was going to be, doesn't even matter if OPEC plus can just come in and counteract That is that just going to be permanently true in the oil market, that the only actual factor that matters is the policy of

OPEC plus. Well, the irony that it's great you're asking you the question because you know so many people analysts have kind of ruled or they've just said OPEC plus don't matter anymore, and um, they've kind of ruled out their importance in the market. But I think you're exactly right OPEC plus and particularly the alliance between South Arabian Russia. Uh, it's it's shown how they have stabilized the market, and

I think that alliance is going to continue. Of course, the current deal only goes on till the end of the next year, but there will be cooperation and some form of market management, depending of course, on the situation. I think the market continues to tighten from here into twenty three. They will continue to bring back production and the market is going to need it. We just don't have production anywhere else. But there will be cooperation between

this these countries for the foreseeable future. Yes, we're speaking with the rediscent of energy aspects. You said at the outside of the conversation that you think that this is a huge overreaction to what we heard out of South Africa. How much of a buying opportunity is this, especially considering the fact that people do shift their minds are knee jerk reactions and policymakers in Europe, in the United States, in Asia want to see the price go lower. Yeah,

I mean this is this is great, right. I think from the policy maker's point of view, this is this is what they'd hoped for after the spr but they got it because of the variant, so ultimately they still got what they wanted. But I think the very fact that is Thanksgiving and liquidity is law is exacerbating the price move. I think in a normal trading environment we probably wouldn't have gone down as much because there would

be some buias here. Right now, it's the fear that's driving prices, and I wouldn't necessarily get in the way, right, It's like catching a falling knife. Um. But I think once we get a bit more clarity around this, variant and it's not just mere speculation. I think that's when it becomes a buying opportunity, But that could very well be that that's early next week or maybe even mid next week, because you do need that clarity first. Emucent

of energy aspects, thank you so much. Yea. So, how much of what we're seeing right now is true risk off and is a reassessment of the global growth picture? And how much is thin liquidity with everybody still in their Thanksgiving commas. David Riley joining US blue Way Asset Management, chief investment strategist. I do wonder, David, what you make

of today's move. Well, I think the move is reflecting the we viewed the pandemic, The market viewed the pandemic and COVID essentially in the rearview mirror, and I think what you know, this unwelcome news has done. It's kind of challenged that assumption. I mean, the assumption was that we'd go from a pandemic to endemic where we kind

of learned to live with co of it. The macro and market impact is pretty limited and diminishing over time, and something we get this news, which maybe it's a much more infectious varying maybe heaven forbid, Um it is uh, you know, less effectively dealt with in terms of vaccines, and that would you know that clearly increases the kind of left tail risk of a much bigger sort of impact on global growth and macro. But the reality is

is that we actually don't know. And I think the market, because of the low liquidity and we're coming into year end, um, it's kind of you know, reacting as if, um, you know this, this is an arguably greater risk and we can really kind of price at this point in time because we simply don't know. David, the movement bonds really gets my attention. Bonds should not be this volatile, especially with the Fed still putting their thumb on the scales here.

But we see actually the implied volatility and treasury yield surging to the most it's March, and that was of us when everything was falling out of bed. We have seen the idea of a complete retracement of rate hikes next year. Does this make sense to you? Well, I mean, I think the reality is is that we've seen a lot of volatility now for some time, particularly in short term interest rate UH markets and and that's because we are an inflection point in terms of global monetary policy

and most importantly in terms of the FED. I mean it's you know, you write, Lisa, the moves today are very large, and yesterday the market was effectively pricing I think something like a sixty chance that the FED was going to announce an acceleration of its tapering of on purchases at the meeting in December and then actually start hiking rates quite you know, probably in in in mayo June with free rate hikes in the course of two the you know, today's action is kind of taking at

least one of those hikes out. And I think this is one of the dilemmas that now that the FED is facing, because it's allowed itself to get behind the inflation curve, is caught between a rock and a hard place. You know, it needs to start tightening policy given where inflation is and and those inflation pressures that are boardening now. And I think actually bred the speaking the outlem, the

global the U S economy is pretty pretty strong. But now, you know, has this added potential uncertainty as to what's going to happen with the COVID and the pandemic and one of the global implications of that as well. And let me ask you about an extended excension of that topic then, David, and that is the banking sector. We're seeing. That's one of the big sectors that's being hit really hard here in Europe, and it looks as if US banks will also be will also be hit by the

same thing. And this is to do with that. If there's going to be a flatter yield curve and that takes us back some months, then in terms of our thinking on rate hikes and and that leaves banks in a in a stickier situation. Does that make sense to you? Do you see some of the selling in in that sector as being overdone because there's also concern around what for what further variants could do to it. Coconomies in Europe, I suppose, But is it really about the Yielker that's

what's weighing on banks? Well, I think it's a combination of the term and I think, you know, if if you have concerns around UM a COVID coming back to the forefront, if you if you like, rather than being in the background UM, then you know, banks are you know, a cyclical asset and they're going to get take a hit, just as we're seeing some of you know, oil going going much lower, um you know, more other sort of

cyclical assets moving lower. This move to sort of safe havens, you know, the preference for sort of you know, stay at home stocks, you know, versus the sort of reopening um trade. So I think it's kind of consistent with

what else we're seeing happen in the market. But actually I do think it is we've done in the sense that you know, we've gone for a very severe stress test with the financial sector and with banks in particular, as a result of the you know, worse of the pandemic in the course or you know earlier this year and last year, and they've actually come out actually and the guy actually you know, stronger capital buffers, stronger liquidity buffers. So this is where I think, as as investors you

need to you know, stay calm. I wouldn't be doing too much in these kind of markets with this kind of bit offer spreads. But where you have call convictions, and I do actually have a core conviction around banks up there, then actually if we see much more of a sell off, then I think that's an opportunity if you've got some dry powder to actually add to your risk position. David, you said investors need to stay calm, and a lot of times to stay calm, you need

to know that you're at least somewhat protected. What do you tell investors serves as the best hedge in this kind of environment. Well, I think it's it's it's difficult to hedge your portfolio against um, you know, a tail risk, which would be a very bad um uh, you know, very bad outcome. So you know what you have to do. I think with the portfolio is that you say, look,

you know, I'm sticking with my core convictions. If I think there's opportunities and the market has over shot, then I looked to add to that, but also be disciplined in where you have kind of you know, low conviction trades that within your portfolio you take the opportunity to

start reducing your exposure there. And and actually that's something we've been doing to be frank going into what we thought was going to be quite a volatile year end because of these major central bank meetings that we have UM in December. But you can't hedge your way from the kind of extreme terrorists that we're kind of um, you know, scaring the horses right now in terms of markets. David Riley of Lubiasa Management, thank you so much for

coming on our show. When we should be talking about shopping, we should be talking about the incredibly strong data, and instead we're talking about a new variation. Today is Black Friday. We are going to talk about shopping and it is olive into the entire picture. Joe Pelban joining us, We are so lucky to have you seen your research analyst

and assistant director of research at Telsey Joe. When we look at the shopping scenario, just tying it into the news of the morning, how much have we seen a return to stores and how much are people now accustomed to shopping online? It is safer, it is easier, It is the way that people are going. Well. For the few stores that were open this morning at five am, I think the online was still very prevalent because there

was not a mad rush to get into the stores. Uh. It does seem like people are shopping more online these days, and I think that that's going to be the case. If you really wanted to get something, you could get it in advance. I assume there will be some quite a bit of store pick up today. People probably did some shopping yesterday online that they want to pick up in the stores. But we're hearing that this weekend should be a pretty good weekend from a footfall perspective, as

people do want to actually get back into the stores. Uh, you know, I know that the new variant of COVID is a little scary. So far, we haven't heard of it here in the U, so I don't think it's going to impact this weekend per se, but it could have an impact as you get deeper into the holiday season in terms of the store versus online. So there has been a shift also, though not just in where people shop, but when they shop. And Black Friday used to be the time when everybody would go to the stores.

But what we're seeing is actually less shopping than previously expected online heading into the Black Friday holiday. This isn't because people aren't buying a lot of stuff. They are. It is because they've spread it out over more time.

How much is that becoming the new normal? Yeah, we think that is the new normal that spread through the holiday season, which is why it makes it very difficult for analysts like myself to go into a store today and then try to make some assessment, Oh, it was a good Black Friday, a bad Black Friday so much as online, so much was pulled forward earlier, so a

lot's going to happen after. I do think this year the one big difference though, is because the inventory is so tight and the supply cha constraints are there, people are buying earlier for sure if they want to get something well, and to that point, Joe, inventory is really tight. There's not necessarily all the goods that people want to buy available. So does that mean that you weren't going

to get your traditional big bargain Black Friday discounts? You know, that's a terrific observation because the truth is you're really not getting what you've seen in years past. Uh. Last year was okay, people a little you know, more more focused on on full price. This year, same thing. We're seeing a lot more UH pricing closer to the full price, so that in other words, the discounts aren't a steep We're seeing anywhere twenty for most stores, so I won't

be deeper. I think I saw some signs on the gap today for off, but generally speaking, there weren't many, you know, deals to be had that were just screaming at you this morning, at least a few stores that I saw that you had to rush in to get it. Well. You you mentioned gap there, which of course reported results earlier this week, and it flagged inventory as a problem because of all the supply chain issues that retailers are dealing with. Do you expect that some retailers just simply

will not have the inventory this holiday season? I do think that there are some that will be very tight, uh, you know, from for the most part, we got through this third quarter earning season and the inventory position for most retailers was actually pretty good. It was better than a lot of us expected, and still not great where you'd like it to be heading into the holiday season. But there is this fear that there may not be that second wave of inventory coming in, so it could

be pretty tight as you get deeper into the season. Um, but I think that we are going to see some pressure through through on the inventory, but again it will mean prices will be closer to full price as opposed to steep discounts. Joe, I'm already running behind. I still owe somebody in my family a gift from last holiday that still has us not so I'm already in trouble.

But in terms of availability, I mean, is it really the sticker prices that you know, the big discounts that are going to get people through the door this time around, or is it really about the availability, you know? I mean, if I knew that a certain store had plenty of a thing that's very popular, install might that be the thing that this year actually gets me to to to show up in person on the doorstep rather than the prices.

And consumers have shown that they're prepared to pay up to the stuff they want, is getting their hands on it that's difficult? Yeah. I think that's a great observation because you are going to see any people will want to get the item that they want, and you know, we're seeing that they will go to the store if need be to get that item. I don't think it's

the discount that's going to drive it right now. I really do think it is much much more item driven that you're going to see people wanting, uh that special toy or electronics item and whatever is particularly popular. It really has been tough to get and so people will go wherever they need to to get it to satisfy their that demand. Yeah, and an army tail is falling into two camps. Then for you, Joe, that the ones that have the pricing power and the ones that operate

in the field where they really don't. Is that what you're seeing. We do believe that, you know, and those with the inventory and the pricing power are really likely to be the big winners. I mean, Walmart, Target, you know, Costco's Amazon. We think those are going to be some of the big winners this holiday season, just given that they do have inventory, they've got the best pricing, and they really have the broad base of of items across the categories that people would want to shop for. So

we're pretty optimistic about those guys hanging in the season. Joe, if we do see a resurgence in new cases of COVID, I hate that I'm saying this, But if we see this new variant actually take hold and start to create a prolonged feeling of the pandemic, again, I hate that

I'm saying this. Do you expect there to be a conditional and an additional consolidation among the biggest players here because of their supply chain UH power because of their ability to negotiate independently with particular suppliers with particular nations. We think we're already starting to see it where, you know, the market share gains for some of those big Bucks guys, the Walmarts and Targets of the world costcos where they were able to, you know, get the products that they need.

They were able to negotiate with their their shipping partners and in some cases do it on their own. And so I think you're absolutely right that they're getting what they need, they're consolidating that inventory. They also have the best prices out there, so they can be really competitive in this environment. I think it's been really much more challenging for some of the smaller retailers to deal with

this environment and with it. If there is another flare up in the pandemic here in the US, UH you know, fourth wave or something, I would think we're going to see similar type of behaviors. And that's part of why we've seen Walmart and Target, even the grocers are holding up a lot better than people thought they would have

at this point. I think that we all thought they would have been much bigger reversion to the means, so to speak, and it really hasn't been you know, We've just elevated the level of sales and we're growing on top of that. Joe Felban, thank you so much for being with us. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us five weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the

best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg