Daily Comment (April 27, 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 a range of U.S. political and policy news, followed by various international developments that could affect the financial markets and the investment backdrop today.  We end with the latest news related to the coronavirus pandemic.

U.S. Congress:  The Census Bureau yesterday announced how the 2020 population count will affect the apportionment of seats in the House of Representatives.  Under the formula set out in the law, Texas will gain two more seats, while Oregon, Montana, Colorado, North Carolina, and Florida will each gain one additional seat.  California, Illinois, Michigan, Ohio, Pennsylvania, West Virginia, and New York will all lose one seat.

  • The changes are expected to favor Republicans beginning in 2022 because red-leaning states are gaining more net seats and because the GOP has more control in redrawing the new congressional maps.
  • The party of the incumbent president usually loses seats at the mid-term elections, but the new apportionment system will make it even tougher for the Democrats to hold their current slim majority in the House in 2022.  That will probably give the Biden administration even more reason to try to push through ambitious legislation as soon as possible.

U.S. Tax Policy:  As President Biden prepares to lay out his next economic initiative this week, including tax hikes to help pay the bill, Director of the National Economic Council Brian Deese yesterday said there is no evidence that capital gains tax rates had any “significant impact” on the level of U.S. investment or economic growth over the last 30 to 40 years.  However, he justified the proposal to hike capital gains taxes as a way to improve fairness in the tax system, while Biden’s spending programs boost labor force participation and enhance national economic competitiveness.

  • According to Deese, one key reason for the lack of correlation between capital gains tax rates and investment is that much investment capital comes from pension funds, sovereign wealth funds, and other entities with little to no tax exposure.
  • Despite Deese’s effort to justify the tax hike, the administration continues to face resistance from both Republicans and some Democrats, which will ensure that Biden’s proposals will at least be watered down as they pass through Congress.

U.S. Monetary Policy:  The Federal Reserve begins its latest two-day policy meeting this morning, with a decision scheduled to be released when the meeting ends tomorrow.  We don’t expect any change in the benchmark fed funds interest rate or the central bank’s massive asset purchases, but we will be closely watching the post-meeting press conference for clues about future policy changes.

U.S. Labor Policy:  President Biden today will issue an executive order raising the minimum wage to $15 per hour for federal contractors starting in January 2022.  The higher wages will also need to be enshrined in annual contract extensions, and they must be indexed to inflation.  Even though Biden’s hike in the minimum wage across the broader economy has faltered, the move on federal contractors could help put pressure on private businesses to raise their wage rates or risk losing workers to firms working for the government.  Therefore, the proposal will probably feed into the recent concerns about rising costs and inflation, which boosted bond yields and created stock volatility earlier in the year.

United States-Turkey:  Following President Biden’s official declaration that ethnic Armenians were subjected to genocide a century ago in what is now Turkish territory, Turkish President Erdogan said U.S.-Turkish relations have sunk to a new low.  However, he stopped short of outlining any retaliatory steps and instead reiterated his desire to work with the U.S., signaling concern that escalating tensions further could harm Turkey’s economy.

United States-Iran:  According to the U.S. Navy, three small boats belonging to Iran’s elite Islamic Revolutionary Guards Corps swarmed and harassed two Navy ships for three straight hours in the Persian Gulf early this month.  It was the first such incident since April 2020.

  • U.S. officials are unsure to what degree such incidents are directed by Tehran or launched by rogue ship commanders working for the IRGC and taking their own initiative.
  • Over the weekend, a leaked tape surfaced in which Iran’s foreign minister, Mohammad Javad Zarif, was heard saying that the IRGC often sabotaged Tehran’s efforts, taking matters into their own hands over the concerns of the country’s foreign ministry or government.

COVID-19:  Official data show confirmed cases have risen to 147,986,651 worldwide, with 3,123,358 deaths.  In the United States, confirmed cases rose to 32,125,970, with 572,701 deaths.  Vaccine doses delivered in the U.S. now total 290,692,005, while the number of people who have received at least their first shot totals 140,969,663.  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 56,000 yesterday, but they remained below both the seven-day moving average of 58,164 and the 14-day moving average of 62,807.  New deaths related to the virus totaled 466.  Meanwhile, as the nation’s mass vaccination program continues, some 42.5% of U.S. residents have now received at least one inoculation shot, and 28.9% are considered fully vaccinated.
  • France’s Sanofi (SNY, $51.87) signed a deal to help manufacture as many as 200 million doses of the vaccine from Moderna (MRNA, $177.61) starting in September.  According to the firm, Sanofi will fill vials and finish packaging for the Moderna vaccine at a Sanofi plant in New Jersey, and finished doses of vaccine will be for the U.S. supply.
  • Amid progress against the pandemic, New York Governor Cuomo issued orders to further open up his state’s economy.  Offices in the state will be allowed to operate at 75% of capacity beginning May 15, while casinos and gambling facilities will be able to move to 50% of their capacity.  Gyms and fitness centers outside New York City will be permitted to operate at 50%.  Outdoor spectator events—both sports and entertainment—will be allowed to perform at 33% of capacity.
  • In California, Governor Newsome will face a recall election over his strict pandemic lockdown policies after the Secretary of State’s office confirmed that a petition to force the election received more than enough signatures.
  • Despite EU leaders’ preference for a coordinated approach, several European countries (including France, Italy, Croatia, and Greece) are working on plans to permit tourists from the U.S. as early as this summer, provided they can show proof of vaccination or a fresh molecular test showing no COVID-19 infection.  Given their reliance on tourism, some European countries could see a quick improvement in their economic performance if they can lure in large numbers of visitors from the U.S.
  • Amid the slow vaccine rollout in Japan, even as cases surge ahead of the Olympic Games planned for Tokyo this summer, the government has finally gotten around to authorizing medically licensed Self-Defense Force personnel to help give vaccine shots.
  • As India reported a single-country, single-day record of 352,991 new infections yesterday and hospitals around the country appeared on the brink of collapse, President Biden said the U.S. would send it millions of doses of the vaccine from AstraZeneca (AZN, $52.37), as well as oxygen and other items in short supply.  Besides the obvious humanitarian reasons, the move marks a stark effort by the U.S. to counter the “vaccine diplomacy” that China and Russia have been pursuing for months with their own vaccines.
  • Although the Biden announcement might have been a shot in the arm for the AstraZeneca vaccine (pardon the pun), it actually revealed yet another problem with the shot.  People familiar with the plans said the promise to deliver the vaccine doses within “weeks” rather than “days” reflected manufacturing hiccups at a contract manufacturer’s plant in Baltimore.
  • The Brazilian federal health regulator has rejected importing Russia’s Sputnik V vaccine after technical staff pointed to “inherent risks.”  They said there was a lack of information guaranteeing its safety, quality, and effectiveness.

 Economic and Financial Market Impacts

  • According to mobile phone data from analytics firm Placer.ai, traffic at a representative sample of 50 malls in March was up 86% from the same month last year.  While that foot traffic was still 24% lower than in March 2019, mall owners suggest that their business has turned a corner, driven by factors such as mass vaccinations, looser pandemic restrictions, and federal stimulus checks.  If such data continues to accumulate, it will help validate the rosy forecasts for a quick economic rebound that have helped buoy risk assets this year.
  • An analysis of Census Bureau data by the Wall Street Journal shows women thrown out of the labor force because of the pandemic are getting back into it more slowly than men, likely because of factors such as limited access to child care, a lack of attractive jobs, the demands of home and virtual schooling, and health concerns.
  • Reflecting ongoing concerns about inflation as the economy reopens from the pandemic and continues to receive lots of fiscal and monetary stimulus, demand remains high for Treasury Inflation-Protected Securities (TIPS).

U.S. Policy Response

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