Nordea: Vaccines ripping, reopening boom imminent

Yesterday I noted that the latest research on vaccine efficacy coming out of the UK is very encouraging. The vaccines are working better than expected from lab tests and once fully immunised even virus variants are heavily retarded. Today Nordea looks at the timetablele for rollout and reopening:

Key takeaways from the analysis

  • 35-37% of the population needs to be vaccinated before a major breakthrough is seen based on the Israeli case – UK will reach the threshold very soon, US in early April and continental Europe in early May.
  • Nordic countries are better than EU averages when it comes to administering the vaccine roll-out
  • Most virologists are too pessimistic by now, and re-openings will likely be swifter than anticipated.The Israeli case–35-37% of the population had a vaccine before the breakthrough Israel has by far been the country leading the vaccine rollout and by the time of writing more than half of the population has received the first dose and a third the second dose. With the risk group and elderly almost completely vaccinated they have begun their reopening by the 21st of February where they also launched a Green Pass for vaccinated people. The Green Pass gives vaccinated fewer restrictions during the reopening, a strategy that without a doubt will attract criticism.
  • The vaccine effect is indisputable as the average age of hospitalized patients and patients in ICUs has been strongly decreasing for the last couple of weeks, while the total number of infected and hospitalized patients are now also clearly declining.
  • By the end of December Israel introduced a third lock-down as a result of a heavy rise in daily cases through the month. The transmission hit its peak by mid of January before dropping. Even though the vaccination rollout continued smoothly it took several weeks to constrain the virus due to the spread of the British mutation and a carelessness from the ultra-orthodox part of the society. Our lead/lag studies from Israel suggest that around 35-37% of the population needs to be vaccinated (with at least one dose) before the final step towards reopening will be allowed. So let’s take a look at how close we are to such thresholds in other parts of the world. We will be without (too many) restrictions sooner than you think!

EU to lag UK and US in the re-opening phase

A lacking supply of vaccines and a sluggish effciency in administering of said supply leaves the EU as a whole far behind its peers  in the UK and the US. Swifter approvals of vaccines, smarter wordings of contracts with suppliers and more funding given to the R&D phase, leaves the UK and US clearly ahead of the EU on the supply front. The UK has also opted for a wide vaccination programme, ensuring a broad immunization before a full immunization of each individual. This has so far proven to be a winning strategy and e.g.Finland now follows roughly the same strategy.

Current pace of vaccinations

Our model accounts for the previous pace of delivery as well our expectations of future deliveries. In essence the model is built on an expected supply during 2021 and an increasing efficacy in the distribution. One of the key ingredients to a larger progression in the EU will be the addition of JnJ to the supply. EU holds a 300m dose contract with the firm and remember that JnJ provides “full protection” at only one dose. This significantly increases the vaccination progress. So that leaves the question: when?On February 16th, JnJ lodged an offcial submission for Conditional Marketing Authorization with the EMA, i.e. the rights to distribute its vaccine in the EU, in their press release they followed up with “We stand ready to begin distributing our vaccine within the European Union in the second quarter of 2021.” Our model shows that it is unlikely that the EU will catch up to the UK and US –they are simply too far ahead already and both have shown impressive gains to effciency in their processes over the last two months. The EU countries have not. The UK is already very close to reaching the 35-37% vaccination threshold, which will allow them to reopen faster than anticipated already towards the end of March and into the beginning of April. The most efficient countries in the EU (such as Denmark and other Nordic countries) will likely reach the threshold during the early stages of April, which  will allow a broad reopening around Eastertime, just a week or two later than the US. Most of continental Europe will though, on the other hand, likely not reach the tipping point (35-37%) until late April or early May, which will further delay the reopening in big countries such as Germany and France. Thes ere-opening dates are still BETTER than consensus expectations as e.g. the global investor survey hints of a peak positive macro effect from reopening economies towards the end of the summer. It is also clearly a more upbeat scenario than most administrations hold across the globe, and we argue that most virologists are clearly too pessimistic by now. We see a “catch-up” effect in growth coming already in early Q2, which is before broad consensus expectations.

Earlier opening means more activity and inflation earlier. So buckle up for further bond back-ups.

In fact, if we do get a decisive victory for vaccines then I will also have to rethink my outlook for monetary tightening everywhere. My base case is for ongoing vaccine difficulties.

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