Surveillance: Omicron Response With Hotez

dot Com, and of course, on the Bloomberg terminal. Right now, Kaylee Lines and I with our conversation of the day, and it's with a gentleman, Peter Hotez uh All, the dean of a National School of Tropical Medicine at Baylor College. But far more than that, someone who has fought the virology and virus wars in the parasitology wars for decades. The differences Peter Hotez understands a tropical medicine of Africa, the challenges of the geography of Southern Africa that we

don't understand. Peter, to me that so much. The mystery here is how ignorant we are about what needs to be done in Southern Africa. We don't understand it's larger than America on a geographic basis. Yeah, you're absolutely right. If you actually were to superimpose a map of the United States and the African continent, it would barely register.

I mean, the African continent is vast geographically and unfortunately, m the what we've the one lesson we've learned about the worst variants that we have is they arise out of large unvaccinated populations. The alpha variant arose out of an unvaccinated population in the UK and Delta out of an unvaccinated population in India. One What did people think was going to happen allowing Africa, the African continent to go completely unvaccinated. This is not a hookworm. And you've

been leading on this for decades. You did your PhD thesis at Rockefeller on the horrific tropical diseases, the parasites and and all that. If you know the terrain, what holds the rich guys back from helping the poor guys? Is it? Is it an economic constraint, a financial constraint, or is it a moral constraint? It was, you know, the way I see it, Tom, was a science policy failure.

Um The G seven countries there were so fixed when this virus hit on speed and innovation that they all ran like a little kids soccer game where the ball goes in one direction. It was all about mrn a technology and new, new and exciting. You know what I sometimes say in my frustration, shiny new toys that that

no one ever gave thought. As any you know, first year engineering student will tell you that when you have rely exclusively on a brand new technology, there's a learning curve before you can go from zero to nine billion doses and or nine billion of anything, whether it's widgets or mRNA vaccines, if it's a brand new technology, there's

a learning curve. And so there was never the situational awareness among the G seven leaders to say, hey, wait a minute, we also need to balance the portfolio with an older technology that we know we could scale in places like India and Bangladesh and and Indonesia on the African continent. And that's what we did. So we've developed

this recombinant protein vaccine. It's been licensed with no patents, no strings attached to vaccine developers in India, Indonesia, Bangladesh and now with the developer linked to Sub Saharan Africa, and we're doing it and we're making it. But if we had even a fraction of the help that Madarina or visor had gotten from the G seven countries, we might have had the world vaccinated by now. Peter, you talked about policy failures. Is just imposing travel bands from

Southern Africa a policy failure? I think it is. We we've we've learned that travel bands simply don't work. We learned us from the beginning, right. We remember how in February of everybody was so focused on travel bands from China. Meanwhile the virus had already entered into New York City from southern Europe to ignite that horrific epidemic in across New York City. So we know that this virus has already spread around the world. And that's not because not

because there's anything unique to O Macron. That's been true every variant that we've seen so far. By the time we identify a variant, it's already uh, it's already gone global and uh. And so I think a lot of this is based on optics, where the especially in the European Union and now the US, they want to show that they're doing something, and unfortunately it's incredibly self defeating. It actually impairs our ability to fight the pandemic. Number

one and number two, it punishes African countries. And number three, it hurts the economy because it spreads unnecessary panic among investors and and so it's it's a policy failure on all accounts. Well, we did see that panic in the markets take in shape on Friday. This Monday morning, we are getting a little bit of a lift to them. Now, is people really understand that we have very little information at this point? What information is most critical to ascertain? First,

there's three three things we need to know. One about the severity of the illness, and so far it does not look like this variant is producing anything unusual in terms of symptoms or severity of illness, but we'll know more. Second, we need to know if the vaccines are current vaccines will cross protect against the omicron variant. That's what we're doing in our labor our laboratories this week with our

vaccine as is I'm sure Visor and Maderna. And the way you do that is you measure, you look at antibody responses to your vaccines and show that across is neutralized as the omicron variant or what's called the pseudovirus variant. And we'll know that in the coming days. I think there's a good possibility that with the third immunizations and that boost that you'll get enough virus neutralizing untibodies to cross protect at least partially. And I don't know that

for certain, but but that that's the hope. And then we really need to understand the transmissibility. We don't know that, Peter. One final question. I really looked at the vaccination trends this morning, and I think what we're gonna hear from the President is we need to get from vaccinated to sixt vaccinated. How quickly is that doable? Well, sixty unfortunately won't cut it. We need eight of the US population vaccinated.

And you know, Tom, we've got this horrific situation in the United States where since June one hundred and fifty thousand Americans who refused vaccinations needlessly perished from COVID nineteen hundred and fifty thousand. So anti science defiance and aggression is now a leading killer of young Americans in the United States. And as long as we have that defiance, it's gonna be hard to see how we get to

that eighty five percent level. And Peter Hotos, thank you for joining us part for your perspective on Southern Africa. He's with Baylor College as well. Now Celendas joining us now Global head of FA Strategy RBC also help us out there. How sensitive will this market be too incoming economic data including payrolls Friday? Well, economic data is going to be hard to trade off at the moment, just given like you said, we're in this wait and C

mode with respect to omicron um. The early indications that came out over the weekend from the chair of the South African Medical Association definitely positive, but everybody acknowledging there's a lot further to go, and and I think for the moment, we're really focused on how markets are trading into your end. You know, Tommy, you said earlier people have had a really good year so far, and part of the reason I think we've seen the pullback we've seen is people are just trying to lock in those

games rather than get too greedy into year end. Do you readjust for middle or late two thousand twenty two. Is the sense that you have at RBC that all

of your wonderful team recalibrates. Look, at this stage, we're much more focused on the central banks that were about to hike and therefore maybe put off by the uncertainty you know, to do an albion zed if you will, UM, And I put the Bank of England very much in that category versus other central banks that didn't have any kind of big tightening decisions in the very near term future. And I think by the time you get to the back half of two things will look very different to

how they do today. I was sort of surprised also lingles a lack of a dollar retreat in the omicron news of Friday, and to recalibrate with euro one twelve eighty nine, can you call a weaker euro look? I think the euro call will very much depend on on your Omicron outlook. UM. Typically, euro dollar has been trading in line with equities for most of this year, so that's to say, when equities were rallying, euro dollar tended

to be hiring vice versa. We saw a break in that on Friday, and I'm really glad that's what we saw because it makes perfect sense to me. You know, with the UCB very much back of the queue lockdowns and the impact of COVID already having hurt the EU in recent weeks, it made sense that should rotate to the dollar. I still have a call for your dollar lower into next year. I've had that call since the

start of the year, not changed it now. But that's very much based on the cyclical strength of the US versus the your area, and Omicron doesn't change that for me at the moment. So we saw the flipping to euro strength rather than Euro weakness. On Friday. We also saw a massive bid come into the Japanese yend, and that was coming off of extremely weak levels. Was that just the one off bid for a safe haven or do you expect that we actually could see a more

persistent reversal there. Look at stuff for the yend, because I think the closer you get to FED normalization, the more you'll anticipate that change in the head ratures of Japanese investors. And you know, everybody likes the position for that with dollar yen higher, um. But at the moment, the yend, the Swiss frank and even to some extent the Euro are the very popular, the very clean safe

havens in FFX. The dollar, like you said, a little bit more mixed, actually outperforming against the most of the rest of effects, just not the majors. Do you want to talk about the problem child in the MFX right now, dollar lira also, let's go there. We're here from the Turkish leader this morning. We heard from him about ten minutes ago, says he will never advocate for a great hike. A lot of people see him as the de facto leader with a Turkish central bank. How on earth do

you play that currency if at all? Right now, Elsa, I mean, it's a very poise of the question right there. All I'll say is that positioning in the lira is definitely not crowded. We don't think the market is massively long dollar lira UM and I think that if anything creates real concerns when the central bank is not willing to hike rate A Selena's great to catch up. Do you want to us from RBC on this FX market? Andrew Slimon joins us this morning as well. How do

you generate those numbers? What is the core slim and religion that generates those stunning performance numbers? Well, good morning. You know, Look, I think it's flexibility to being open

minded to what the market offers. Uh. Last year travel leisure socks got absolutely obliterated and we bought those uh this year, it's been a little bit more inflation value oriented, and it's basically my belief that as much as people talk about UH inflation sensitive socks, most people are overweighting gross socks, and so this has been a little bit more painful. As energy has been the best performing sector, financials have done well. Most people talk about that, but

they're not invested that way. So having that bias has really helped us all into the competition. I did a Bloomer study andrew off the trading envelope, and I've did a fitted standard deviation move and we've had a four point six standard deviation move in the last four days. Is that a sliming correction? Well, you know, look, on the one hand, I do agree with you know what Goldman sact saying is, you know, more transmissible, less virulent.

I do think that people tend to not react the same way to the issues over and over, so COVID as a reaction is less so. But then again, there's a lot of complacency. The market has done so well this year. Yes, I don't see in the markets down a lot on Friday, but I saw retail money coming in. People are buying the dip and so high levels of complacency.

So I don't think, you know, we'll get a bounce back, but I don't think it's going to be uh, you know, dramatic because of that kind of complacency to this issue over and over. So if it more into something more serious, that that could be a concern. I doubt it. I think there's much bigger issues next year than COVID. Well, let's talk about those issues now for the first time, Andrew, I've got to say this year the first time I sent some real hesitancy in your voice around the secondity market.

Typically it's some convictions and confidence, some bolishness. Andrew, you're not in your head? What's happened to that? Look? I mean, here's a very simple rule. Draw the third year coming off of a bear market or low it's harder. The market doesn't do as well. And that's because financial conditions start to tighten, because you know, central banks say, hey, things are getting better, we don't need this level of

you know, liquidity. So financial conditions are going to tighten. Uh. And I think that will be offset by better earnings and expected next year. But the result is you know kind of a you know, single digit year, and you know as well as I do. With the market open as many days, it is every day, and you can have a one or two percent move on any day. That's a lot of volatility around a single digit year.

So I suspect that next year is going to be a tougher year to make money as long as unless you stay kind of focused on fundamentals and buying companies that are beating estimates. And I think that would be the big story again next year as it was this year. The Pity Chair writes a really good point over the weekend. I want to read out what he said, Andrew, and

you can tell me what you think of it. For the first time since the pandemic started, we faced to sell off where it's unclear what the FED and other central banks will do. There is no guarantee of easy money going forward. Does that resonate with you? It's so yeah, I think for I mean, you know, you've got tighter monetary policy coming, you have a potential corporate taxing, it's a fiscal policy. Those all things lead to a tough

you know, maybe multiples come down a bit. My point is, I think that will be offset by better corporate fundamentals, but it's not going to be a great year. Next year it's going to be tougher. So that's why I was nodding a year. Yeah, this year has been the game has been on, but I think it will get tougher next year. So too right here, as we said today, I think the travel region stocks will bounce big today, but I wouldn't chase them because those are high beta stocks.

I'm just not so sure you want to have a lot of risk in your portfolio as you go into next year. Andrew, how much of the tough picture for equities is actually predicated on the bond market and potentially higher yields and higher reel yields. I think that's part

of it. You know, the higher rates are are part of it, But I think it's tighter financial conditions really because at the end of the day, you know, really if the ten years at one and a half or two percent, I mean you invert that that pe on the bondom market is still astronomical. Stocks are cheap relp

to two bonds. But yeah, I think higher inflation will get you know, the Fed nervous, uh and you know they may not do anything, but the market is going to start to reflect that, and that's that's why the third year is a tough for you. And I think that's going to be the story of next year. Does that mean stay away from growth in two or what do you want to own in a year where it's harder to make money? Yeah? Sure, I think you know.

As Again, going back to what Tom said initially, my view is investors don't have enough of these inflation sensitive stocks in their portfolio. Look at energy, it's the avoid it's the unloved sector. So I've learned with energy stocks they keep going up until suddenly everyone gets on board the abolition. That's when it collapses. And I just don't think that the truth there. I see banks, you know,

they had big sell offs on Friday. I think that's a better opportunity to be a buyo today than you know, you know, the reopening socks. I don't think you know that those we multiples remain really low. So I think it's in the inflation sensitive over the growth names. But having said that, I don't think we're in a situation like two thousand where you know, the megacat tech stocks are that particularly expensive, the high octane one boy they've really come down, and I think they can continue to

come down. But it's really this concept that inflation census socks with remain under owned investors portfolios, because that's not what's worked the last tenders. Are we going to see higher inflation? I mean that's our called. Steve major Over at HSBC was heated this morning that longer term duration yield shows a bet we will not see a persistent,

pernicious inflation. Do you agree. I think we're moving into pire like the sixties time where we had higher inflation, higher growth, because that's what it seems to me that's what central bankers want. Uh and so I think this dual mandated the fat of stable prices in maximunon's employment seems to be tipping more towards max similes employment. And that's reminded me a little bit more of the sixties than the two thousand and ten in an environment. The

SMP did fine in the sixties. It was until seventies it struggled, but inflation sensuis socks did better. Andrew Slimmon right back to the nineteen sixties and nineteen sixty nine, John and get back because Andrew and I watched Get Back this weekend, the new Beatles documentary. It was phenomenal, love that. It was great right about it. It's how naked it is and they even say while they're filming it that they're not happy that they're filming it. And

there's some scenes. One scene where George Harrison talks about Eric Clapton is just absolutely stunning at the time. Andrew Slimmon, Morgan Stanley, where can we watch that film? It's Disney plus one thing we will do, John I and Kylee will probably and highly look at the data this week. We have the right guest for that. Jennifer Lee joins, senior economist at BEMO Capital Markets, who probably and highly always looks at the economic data. What matters this week? Jennifer, Oh,

good morning everyone. Um. You know, of course it's going to be all about the jobs data. Um, that's always the highlights almost every single month. But you know what, I'm going to point to the I S M surveys as as two surveys I think are going to be far more interesting than pain rules because that's where you get all those little comments and an inside look basically at what purchasing managers are facing. These days, like so this is like on the ground news, and we know

that these supply chain problems they can't last forever. And I think these two surveys are probably going to be the first place that you can probably glean that things are hopefully getting a little bit easier. I was hoping to see that last month that we didn't see. It's a little what the repondent respondents are saying for November.

But it was interesting though. I will say that last month I noticed that a couple of them were mentioning some workarounds like because they don't have you don't have X, will then will take why. So I noticed that comment in like the education sector and in wholesale, So people are trying to you know, people are adapting. Our businesses are adapting, and they're figuring out ways to get around

these supply chain issues. If the economy is humming in the year in and certainly that's the reports we've received, can you gauge with the first quarter of next year looks like so right now we have a three and a half percent annualized gain for the first quarter. Uh and this will be a little bit slower than than what we're probably going to see for the fourth quarter. Um. But again it's all you know, it's all within within the like the trend, it will still be about, you know,

about four percent above your goal levels. So the gains will continue. And this is as we see some um some easing I guess of the supply pressures as as the year begins. To these full Coast Jennifer now have a huge asterisk next to them until we find out a little bit more about this new variant that we're obsessing over over the last week or so, the last few days. Oh, everything I think has an asterix around it. But I think there's like I mean, even the weekend.

I mean, I will admit that I was even trying to figure out how to pronounce it um um. But I think we have to figure out still there's so many unknowns about this new variant, just trying to determine how serious it is, you know, and yes, we know that it's easily transmissible, but you know, are we're going to be back to packs? I c use, you know, let's hope not. And so I think that's that's a

big question mark as well. I mean, this is the big difference from last time around, Like last year is that you know, we've got around roughly of the population vaccinated, and that's the huge difference that whether the or not you know it will be effective against this particular variant, we will see, but it definitely have helps borrow some of those effects. I would think we've got a way to find out. And the reason I asked that, Jennifer, is you t up the I S M. Typically I

would too. I'd say the I S M the onto pay roles are really important week for economic data for many market participants right now. I wonder how sensitive they will be to that incoming data. Given the conversation we're having more broadly about COVID. When you speak to paper in the market right now, how receptive are they to this message that you should focus on the I M S this week because they're focusing on something else. I still think we have to focus in on the data.

And a lot of this again is just fear, especially with with with COVID, and you know everyone is it's It's understandable why we would be fearful of something this is of a big unknown U. But I think the data is still matter, especially for the fineral reserve, and as we see you know, price pressure is rising continuously. You know, we're going to expect some sort of a

rate hike um in probably in the third quarter of well. Jennifer, speaking of fear and price pressures, we've seen consumer confidence waning at the same time that you're not seeing it translate into consumers spend, spending or consumption. They are still out in the economy, they're buying there maybe using those stored up savings in order to make purchases of items that are more expensive than they were, say six months ago. When do you expect the consumer to start feeling these

inflationary forces more. I think they are already um facing it, and that's why we're seeing some you know, some wavering I guess on the consumer confidence front. But at the end of the day, I mean, it also depends on you know, on on I hate to say about the time of day and what day of the week that

they're being asked, is this this question? But at the end of the day, it's all about savings and incomes, and we saw from last week a very solid increase in wages and salaries, which at the end of the day, that's what that's really what matters, and having a nice little nest egg put aside for a rainy day, and you know, I'm sure we're gonna have a quick few of those uh in the coming months. So I think that at the end of the day, is just what

matters most for consumer confidence. And of course everyone is, you know, not happy about all these increasing and increases in prices, but as long as they have the incomes to afford it, you know, I think that's you know, that's the bottom line of that. What do you expect we'll see from the wage data specifically on Friday, UM so, we are looking for uh UM an increase about four tenths on on earnings about five percent year every year UM so that's basically in line with the last average

of the last seven month or so. Again steady increases to help you know, pat everyone's wallets and savings accounts, because the labor market remains very, very type and who knows what's gonna happen with with this, with this new variant, if it's going to put pressure on people to you know, perhaps not go back to the to the workforce and um as quickly as they were thinking about, so then you're going to see higher wages coming from the businesses

to help entice them over. Jennifer Lee always going ahead from you. Thanks for baing with this, Jennifer Lee, that of Bemil on the Dikes out for the wake ahead. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 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