LockdownandtheEtymologyofTestResults

With the start of the new week the situation has not changed materially from the last. As the number of cases continue to rise across the world and especially across US, the market participants stare at a prolonged period marred by uncertainty. The only certain part of the equation being that the current policy of complete lockdown will result in getting the economic activity to a grinding halt. The specific instances of exponential number of jobless claims in US and visceral visuals of long march of migrant labourers in India, prove the real and hard economic impact on the ground.

In US, President Trump who had earlier said that the US will be open for business by the Easter weekend has now decried for closure measures till April end. The US dollar index and US stock futures both are down in the morning trade. The 20% rise in the stock markets from its lows during last week will be tested for its strength this week. Other markets across the globe are also down shedding the gains made last week. The Indian stock markets also opened down by close to 2% keeping company to the global trend. Indian rupee trades at 75.20. In the latest data from RBI, it shows that the Foreign currency reserves fell by 10. Bn USD in the third week of March.

In other news, after the big announcements by RBI on Friday where liquidity issue was addressed in ample measure, it still appears that there are certain pockets of the currency market which are still in dislocation. The widened gap between the forward pricing which was getting quoted in the exchange and the OTC markets was one such instance. As normally any such differentials are quickly flattened by the market forces, the continued persistence points that may be lock down measures are hindering activities of sizeable section of market participants.

Now back to the news of corona virus tests. The number of positive cases has risen to 720k on a global basis. Statisticians, epidemiologists and policy makers across the world, when they see this number, they do it in the light of an important concept that the test results are not fool proof. With every result there are four types of scenarios possible i.e. True Positive (one is infected and test shows the infection), False Negative (one is infected but the test shows that infection is not there), True Negative ( one is not infected and the test shows no infection ), False positive ( one is not infected but the test shows infection).

Readers would understand that in case of a highly communicable epidemic, the most important metric to concentrate becomes the False Negatives. Hence the policy makers would rather opt for a sledgehammer approach of complete lock down. Also all the above probabilities can be calculated post facto only and become a modelling case for the next virus attack.