Daily Commentary BY THE CURVE TEAM –

Prelude to Vaccine Distribution

13th of November, 2020

With the first positive vaccine results released this week, there is still much to unfold prior to its distribution.

The positive vaccine news from Pfizer this week is unequivocally positive. Caveats do remain though, in that distributing a vaccine for the entire world has never been done, and the Pfizer vaccine requires very cold storing, meaning it is difficult logistically to distribute.

Ideally other vaccines currently being trialled that are yet to release results will also prove effective. This will mean more doses can be distributed and hopefully the other vaccines have more convenient means of storing and distributing.

Even without these other vaccines though, the news from this week present a way back to pre-Covid life. But much is still to unfold before a vaccine is widely distributed.

One relationship that will be of interest over this time is Australia’s trading relationship with China. Yesterday China banned Victorian imports of timber indefinitely.

China claimed there were pests from some of the inspected timber that was imported. Victoria being targeted is particularly interesting, as they are the only state to have signed up to China’s Belt and Road Initiative, which involves China investing in mainly infrastructure projects around the world.

Already China have imposed tariffs or banned imports of barley, coal and wine among others. Australia have also cited political reasons as justification to be weary of travelling to China.

Australia’s economy is massively dependant on China, given the account for roughly two thirds of our exports. Even with a vaccine, if our relationship with China deteriorates, then our economy will take a huge hit.

Overseas in the developed world, a vaccine could not arrive sooner as Covid cases have gotten out of hand. Much of Europe have reimposed lockdown laws.

The third quarter should see spikes in GDP, for example Britain’s economy rose 15.5% over Q3. However, these recoveries are from low levels just as lockdown rules are being introduced in Q4. Britain’s GDP remains 9.6% below last year even after the Q3 jump.

Businesses and governments will need to withstand difficult conditions for what looks like at least the next 6 months. Those that do and can survive will look forward to rosier conditions beyond that horizon.

Josh Stewart

Associate - Money Markets