What you need to know
The basic playbook for the COVID-19 recovery is that the vaccine will work. However, one aspect you may have in the back of your mind is how effective will the vaccine be against the COVID-19 variants? In this article I will outline the variants and some of the key issues that there are around them.
Is a variant a real threat to the recovery?
In short, yes. Or at least it could be. Variants are inevitable as the virus moves amongst populations. Most variants are harmless. According to Sharon Peacock, the head of the COVID-19 Genomics Consortium, the main worry is if we get 'escape mutations'. These are mutations that can evade our immune systems and/or the existing vaccines. This has the potential to push us back to the very start of dealing with the virus. Needless to say this would result in a large sell off in risk assets.
Which variants are we aware of?
The major variants that we are aware of are strains known as the UK, Brazilian, and South African mutations.
How do we spot them?
The London variant was spotted by a team who noticed a sharp rise of cases in Kent, England. This variant was known as the B.1.1.7 and was spreading faster than the others. The UK is well placed to spot these variants as the UK has a new body called the G2P -UK National Virology Consortium to specifically keep track of the new variants. Not every country will be as set up for spotting variants as the UK, so this does pose a risk. The London variant was spotted relatively quickly which allowed action to be taken to limit its spread. This is a concern highlighted by Angela Rasmussen at Georgetown University in Washington DC. She said that it is,'unlikely that, overnight, a variant is going to emerge that is capable of completely evading the vaccine, but if we are not looking, then we might not find them until it is too late'
How quickly is COVID-19 evolving?
Slowly, thankfully. According to David Robertson at the MC University of Glasgow Centre for Virus Research the virus is evolving. 'very slowly'. According to the New Scientist (23 Jan edition 2021 p 08) the virus's average mutation rate remains low and steady at about two mutations per lineage per month. So, this is in our favour.
Will the current vaccines work on the new variants?
In short, they are expected to. Those in the know, like Jesse Bloom at the Fred Hutchinson Cancer Research Centre in Seattle, are optimistic. Bloom said that, 'current vaccines will remain quite useful'. However, she did qualify that by saying that 'eventually it will be necessary to update vaccines to account for viral evolution'. Though, due to the slow change of COVID-19 that should not be necessary every year. This was underscored by Kingston Mills at Trinity College Dublin who said that, 'it does not seem to be as mutable a virus as influenza'. So, this means we probably won't need to update the virus every year.
Encouragingly this week the Novavax jab is the first to show that it is effective against the new virus variant found in the UK showing that it was over 89% effective in UK trials. This confirms what the received wisdom appears to be. A slow virus, with slow changes and the current vaccines should do the job.
Less encouragingly the Johnson & Johnson vaccine was only 57% effective in South Africa where one of the new variants are, However, at least the vaccine was 88% effective in preventing serious disease. So, although not great - it is a tolerable result. Especially as the effectiveness in the US was +72% with 70% being seen as the required target.
Can we eradicate the virus?
Unlikely. This is because some viruses can circulate as the vaccines only prevent the symptoms of the virus. We are also not sure exactly how all our vaccines are working at present.This means the virus may circulate quite happily, but only show symptoms in unvaccinated people. This is the case with whopping cough for example. Also, some people will refuse the vaccine. In France they are reported to have a 4 in 10 projected rejection rate. The only virus we have ever eradicated is the small pox virus and that took enormous time and effort to do. So, it is probably here to stay. However, it could end up as being just a mildly unpleasant virus like the common cold. So, a COVID-19 that remains is not necessarily going to be as harmful as it is now.
So, what's the trade?
Global growth is set to continue and vaccine optimism is well placed. The variants should work and the Novavax trials give the green light for risk in the bigger picture.
AUDJPY, NZDJPY longs all look good on pro-cyclical and a global synchronised recovery. The FTSE 100 looks cheap now with Brexit done and around 11% of the UK has received at least one dose of a vaccine. A copper and oil buy on deeper pullbacks all make sense as well.
What's the risk?
The risk is that a variant emerges, but the present evidence says that is unlikely. However, the market will be sensitive to this news and will be a key headline to watch. However, probably a buy on the dips until/unless the variant is proven to be resistant to our present vaccines.