Morning Commentary: Learned Immunity Not Herd Immunity

Foreign Exchange - Morning Commentary
Learned Immunity Not Herd Immunity
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Herd immunity has been a key topic of discussion, especially over the past couple of weeks.  It has been argued that some regions have already achieved herd immunity which is why there have been few instances of multiple outbreaks in the same region.  While some areas have avoided multiple outbreaks, this is likely due to learned immunity.  The good news is that learned immunity helps control the virus, but the bad news is that learned immunity prevents the economy from returning to full capacity. 

The theory around herd immunity goes as follows: if the share of the population that is immune is greater than the immunity threshold, then average number of people infected by each infected person is less than one and the disease dies out.  But as with most things, this is simple in theory but complicated in practice. 

Research has shown that people could lose antibody immunity after a few months.  In New York City, the seroprevalence rate (percent of people with COVID antibodies in their blood) is around 17-20%, well below what the IHME has estimated to be the infection rate in the state. Given that NYC accounted for 67% of deaths in the state, either the IHME estimate is way too high or a material number of people lost antibody immunity.  

Moreover, medical experts have estimated a transmission rate of 2.5-3.0 in a fully open economy.  This means the heard immunity threshold would be anywhere from 60.0% to 66.7%.  For scale, the 6.7% range equates to ~22 million cases or 3x the current total number of confirmed cases.  Granted policies and changes to business practices and social norms have reduced the actual transmission rate from the “natural” transmission rate, estimates of the percentage of the population with anti-bodies is nowhere near what is needed for herd immunity.  

Instead, it is learned immunity that has kept the virus under control.  From an economic perspective, the key question becomes, which measures that have led to learned immunity can be sustained and at what cost? 

It is important to note that factors that have led to learned immunity can be somewhat redundant.  For example, precautions around nursing homes have less marginal benefit if everyone wears masks.  The good news from this is that initial re-opening might not affect the transmission rate because other restrictions are in place.  The bad news is that there is a risk of infections spiking in the latter re-opening stages as the last restrictions are removed.  

Ultimately, learned immunity has allowed for a significant economic recovery but until a vaccine is available, it would be very difficult for the economy to return to business as usual. In the absence of certainty due to changing transmission rates and the possible loss of antibodies, voluntary and policy restrictions will likely remain an economic headwind longer than strictly necessary.
  • House Democrats released a new $2.2 trillion relief plan that will be discussed by House Speaker Pelosi and Treasury Secretary Mnuchin today even though the deal amount is larger than what the White House and Republicans support.  The new proposal includes more funds for individuals, airlines, restaurants and schools. 
  • China’s purchases of US goods under the Phase 1 deal has slowed from July.  Purchases through the first 8 months total to less than 1/3 of China’s full year target under the trade deal.  
  • UK Cabinet Office Minister Grove is in Brussels for formal Brexit negotiations.  News reports point to positive informal talks but major differences remain.  Given this, history has shown the majority of progress, if any, comes at the last minute meaning the GBP remains vulnerable to negative headlines.  
  • Calls are growing for the Bank of Japan to conduct a policy review.  It is still very early in the process, but it wouldn’t be a huge surprise to see the Bank of Japan tweak its policies along the lines of what the Fed has done.
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