Daily Comment (April 14, 2021)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
In today’s Comment, we open with multiple geopolitical developments relating mostly to China, Russia, and the Middle East. In general, the developments point to continued tensions, but that may not be enough to spoil the positive vibe that the quarter’s initial earnings reports seem to be providing today. We wrap up with the latest news on the coronavirus pandemic.
United States-China: An unclassified report from the Director of National Intelligence says China is the top threat facing the U.S. and warns that it “will continue its whole-of-government efforts to spread China’s influence, undercut that of the United States, drive wedges between Washington and its allies and partners, and foster new international norms that favor the authoritarian Chinese system.” The report warns that China is also seeking to at least double its nuclear weapons stockpile during the next decade and will keep pursuing foreign military bases.
- As the Biden administration continues trying to revitalize U.S. alliances to counter China, it is reportedly pressuring Japanese Prime Minister Suga to join with President Biden in issuing a statement of support for Taiwan when he visits the White House on Friday. If Suga agrees, it would be the first U.S.-Japanese joint statement on Taiwan since 1969.
- A joint Biden-Suga statement would reinforce the recent joint message from U.S. Secretary of State Blinken, U.S. Secretary of Defense Austin, Japanese Foreign Minister Motegi, and Japanese Defense Minister Kishi, which stressed the “importance of peace and stability in the Taiwan Strait.” However, some Japanese officials worry that another such statement from the level of Biden and Suga would be too provocative and could prompt China to retaliate against Japanese economic interests.
United States-Russia: In a telephone call between President Biden and Russian President Putin yesterday, Biden proposed a summit between the two leaders in a third country sometime in the coming months. According to a White House readout of the call, Biden stressed to Putin that the U.S. is committed to Ukrainian sovereignty and territorial integrity, regardless of Russia massing military forces on its border. Separately, Germany’s defense minister assessed that the Russian military moves are an effort to provoke a Ukrainian or NATO reaction that would justify further incursions into Ukraine. All the same, it’s important that some administration officials want to cool tensions with Russia so that it is less inclined to support China, and the U.S. can concentrate its energy on Chinese aggression.
United States-Afghanistan: President Biden today is expected to announce that he will withdraw all remaining U.S. troops from Afghanistan no later than September 11. In reality, officials said the withdrawal of all U.S. and NATO troops will likely be completed well before the September target date, possibly by this summer.
Iran: Responding to what was apparently an Israeli cyberattack that knocked out several centrifuges at its Natanz uranium enrichment facility, Iran’s deputy foreign minister said the country would start enriching uranium there to 60% purity, close to the 90% purity required for nuclear weapons. The announcement appeared to be intended to counter the notion that Iran’s nuclear program had suffered a major setback and to fortify the country’s negotiating hand at the current Vienna talks on restarting its 2015 nuclear limitation deal.
Global Oil Market: In its monthly report, the International Energy Agency boosted its estimate of global oil demand in 2021 by 230,000 barrels per day (bpd) to a total of 96.7 million bpd, representing a gain of 6.3% from 2020. The increased forecast came one day after OPEC also boosted its forecast for 2021 demand to a similar amount. Rising demand, gradually declining inventories, a potential renewed weakening in the dollar, and rising U.S.-Iran tensions continue to buoy oil prices, despite OPEC and its partners recently agreeing to gradually increase their output again.
COVID-19: Official data show confirmed cases have risen to 137,559,799 worldwide, with 2,962,066 deaths. In the United States, confirmed cases rose to 31,347,470, with 563,453 deaths. Vaccine doses delivered in the U.S. now total 245,364,805, while the number of people who have received at least their first shot totals 122,295,530. Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.
- Newly confirmed U.S. infections rose to more than 77,000 yesterday, well above both the seven-day moving average of 68,960 and the 14-day moving average of 66,824. Infection rates continue to rebound in response to factors such as new, more transmissible mutations, the easing of pandemic restrictions, and fatigue over social distancing. On a more positive note, however, deaths related to the virus came in at just 907, well below the peak levels earlier in the pandemic. Vaccinations also continue to rise quickly. As of yesterday, some 36.8% of U.S. residents have received at least one vaccine shot, and 22.7% are fully inoculated.
- A federal advisory panel will meet this afternoon to debate whether and how the vaccine from Johnson & Johnson (JNJ, USD, 159.48) should continue to be used in the U.S., following reports this week of rare but severe blood clots among a few recipients. Meanwhile, responding to the government’s recommendation for a pause in administering the vaccine, Johnson & Johnson has postponed its planned rollout of the shot to Europe. Still, the development has raised fears that the recent progress in reducing people’s vaccine hesitancy could be reversed.
- Amid surging infections and hospitalizations, India’s drug regulators have granted emergency approval to Russia’s Sputnik V vaccine, paving the way for both local production and potential imports of the vaccine. The government also said it would grant emergency authorization to any foreign COVID-19 vaccines approved for use in the U.S., the UK, Europe, or Japan, waiving the previous requirement for time-consuming local “bridging trials.” Separately, the resurgence of infections in India and renewed lockdowns are again prompting migrant workers to return to their homes in the countryside.
- In Italy, where infections and deaths per capita are also extremely high, a new analysis indicates part of the problem is that regional governments too often failed to prioritize the vaccination of the elderly, leaving them vulnerable.
- In Canada, resurgent infections and a slow vaccine rollout mean that hospitalizations are surging and putting more pressure on the healthcare system than at any other time in recent history. Hospitals in the country’s most populous province, Ontario, are canceling surgeries, transferring patients, and preparing for the possible need to ration care as they face a surge in COVID-19 patients.
Economic and Financial Market Impacts
- As the pandemic-driven surge in demand for consumer goods continues, trucking companies are struggling with tight shipping capacity and skyrocketing wage rates for drivers, all of which will likely feed into inflation concerns.
U.S. Policy Response
Overwhelmed state and local authorities are grappling with how to allocate $25 billion in federal rental relief, leaving many tenants and landlords waiting weeks or months for their share.