Daily Comment (April 20, 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 the latest developments on President Biden’s proposed package of infrastructure and other economic measures.  We then pivot to the international news most likely to affect the financial markets today.  As is often the case, there are new signs of friction between the U.S. and China, and the Russian buildup of military forces on the Ukrainian border looks more threatening than previously known.  We end with an overview of the latest developments on the coronavirus pandemic.

U.S. Fiscal Policy:  In the latest White House meeting regarding President Biden’s plan to spend $2.3 trillion on infrastructure and other economic measures, the president and a bipartisan group of lawmakers discussed a smaller increase in the corporate tax rate and possible changes to the size and scope of the package.  As the meeting got underway, Biden asserted, “I am prepared to compromise, prepared to see what we can do and what we can get together on.”

  • Some Senate Republicans, critical of the corporate tax increases and the broad scope of Biden’s plan, have started discussing making a counteroffer in the realm of $600 billion to $800 billion.  A group of Republicans met yesterday to discuss that possibility, with lawmakers aiming to release their own plan soon.
  • If the White House is really as flexible as it says regarding the infrastructure and economic plan, there is probably a greater chance that a significant bill will get passed, perhaps even with some Republican support.  That prospect, along with continuing monetary stimulus and economic reopening from the coronavirus pandemic, would help buoy risk assets and keep alive fears of higher inflation and interest rates going forward.

United States-China:  Speaking at a major Chinese business conference, President Xi delivered a forceful call for a new world order no longer dominated by the U.S. and its values.  Although he never mentioned the U.S. by name, Xi argued that “International affairs should be handled by everyone . . . The rules set by one or several countries should not be imposed on others, and the unilateralism of individual countries should not give the whole world its rhythm.”

United Kingdom-China:  British national security officials led by the intelligence agency MI5 are launching a campaign warning that China and other hostile countries are using professional networking sites such as LinkedIn to recruit new sources and steal classified information.

  • Starting this week, the campaign will warn 450,000 civil servants and partners in industry and academia that Britain’s adversaries are creating fake online accounts to ensnare people who are privy to classified information.
  • Posing as recruiters, foreign spies lure their targets to meetings in person where they may be subjected to bribery or blackmail in order to obtain intelligence.

Russia-Ukraine:  While we’ve been reporting on the buildup of Russian military forces on the country’s border with Ukraine, new data suggest the surge is even bigger than previously known.  Commercial satellite imagery shows Russia has now deployed a wide range of assets in the area, including airborne troops, motorized rifle and armored units, attack helicopters, smoke generators, reconnaissance drones, jamming equipment, and a field hospital.  All told, U.S. and European officials estimate Russia has deployed 100,000 or more troops on the border.  Leaked Ukrainian military, analysts also say Russia has blocked off more than a quarter of the Black Sea, ostensibly for “military exercises,” but in reality to disrupt Ukrainian trade and provoke a Ukrainian response that would serve as a pretext for incursion.

  • The amount of military assets that Russia has on or near the border will significantly increase its ability to intimidate the Ukrainian government or mount an incursion into Ukraine, although a major objective of Russia might simply be to test the new Biden administration’s resolve.
  • Biden administration officials have been preparing options to provide lethal and nonlethal military aid to Ukraine in the event of a Russian attack. The options include antitank, anti-ship, and antiaircraft systems, though they haven’t yet been presented to President Biden for a decision.  Naturally, Russia’s actions could also spark new economic sanctions.
  • In any case, rising tensions or an outright military incursion into Ukraine would likely be unsettling for risk assets, although any violence would likely spark strong buying in safe-haven assets such as gold.

Germany:  Armin Laschet has won the race to succeed Angela Merkel as head of the ruling center-right CDU/CSU party, after rival Markus Söder, the prime minister of Bavaria, threw in the towel.  With Chancellor Merkel retiring and the CDU/CSU trailing badly in the polls, the unpopular Laschet will lead the party against the resurgent Greens in national elections scheduled later this year.

COVID-19:  Official data show confirmed cases have risen to 142,217,752 worldwide, with 3,032,909 deaths.  In the United States, confirmed cases rose to 31,739,364, with 567,729 deaths.  Vaccine doses delivered in the U.S. now total 264,505,725, while the number of people who have received at least their first shot totals 132,321,628.  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 approximately 67,000 yesterday, but that was still slightly lower than the seven-day moving average of 67,451 and the 14-day moving average of 68,636.  Meanwhile, new deaths related to the virus totaled a relatively modest 473.
  • Even though all adults are now eligible for a COVID-19 vaccination in all U.S. states and territories, hitting President Biden’s deadline of April 19, about one-fifth of those aged 65 and older still haven’t been vaccinated.  The shortfall illustrates the risk that vaccination rates soon could taper off, leaving plenty of U.S. residents at risk of contracting and/or spreading the disease.
  • The experience of the U.K., Israel, and Chile, all of which rapidly vaccinated a large proportion of their citizens, shows that risks remain even after a major vaccine program is implemented.
  • In India, the government ordered a tight new lockdown on New Delhi to combat a resurgence of infections that have brought the healthcare system to the brink of collapse.  As of 10 p.m. local time, shops and businesses were forced to shut, and people’s movements were restricted to accessing and providing essential services.  Other regions have also imposed fewer sweeping lockdowns.
    • It appears that one reason for the rebounding infections is the presence of various mutations that are more transmissible than the original coronavirus, including the strains first found in the U.K., Brazil, and South Africa.
    • There is even a new, highly transmissible “double mutation” variant, which gets its name because it has two mutations seen separately in other variants but not in the same variant.
  • Because of the pandemic’s resurgence in India, the British government said it would add the country to its “red list” of nations from which travel into Britain is restricted.  For example, British and Irish nationals traveling from India will have to quarantine in a hotel for ten days following their arrival. Individuals who are not U.K. or Irish citizens will not be permitted to enter the U.K. if they have been in India in the previous ten days.

Economic and Financial Market Impacts

Foreign Policy Response

  • In a sign that U.S. policymakers aren’t the only ones who want to avoid a repeat of the tight fiscal policy that arguably held back the recovery from the Great Financial Crisis, the Canadian government today proposed an expansive budget for the coming fiscal year.  However, despite massive new spending and another enormous fiscal deficit in the coming year, the plan foresees the deficit falling to just 1.1% of gross domestic product by 2025.

 View PDF