Daily Comment (April 30, 2021)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Good morning, all! U.S. equities are expected to open lower this morning as weak GDP from Europe and concerns about rising COVID-19 cases in emerging markets have weighed on market sentiment. There was a lot of overnight news. We start off today’s report with a discussion about the double-dip recession in the Eurozone. International news follows, where the EU is accusing a tech company of being anti-competitive, there was a stampede in Israel, and more. Economics and policy are up next, including details of Biden’s tax plan and a possible ban on menthols. China news follows, and we close with pandemic coverage.
Eurozone: There are rising concerns about the global economy following weak GDP numbers coming out of Europe. The Eurozone fell into a double-dip recession primarily due to contractions in three out of the four largest economies in the bloc. Germany, Italy, and Spain saw their respective economies contract following botched vaccine rollouts and the reimposition of restrictions. France, the only country out of the four to not contract, was forced to reimplement restrictions earlier this month, further adding to the uncertainty of the state of the Eurozone economy. The bad news coming out of Europe has largely offset optimism caused by the strong U.S. GDP report and clouds optimism of a fast global recovery. As the pandemic recedes, we may see a fairly unbalanced recovery as countries begin to emerge at different times. This could be a positive for exporters as a staggering recovery could lead to sustained demand for goods as firms rebuild their inventories. However, the downside is that supply chain issues could also be prolonged until everything returns to normal.
International news: Israel objects to restoring the nuclear deal, Russia withdraws from the Ukraine border, and more.
- In Israel, at least 44 people were killed and 150 people injured as people fell and were stampeded following a trip to Mount Meron to celebrate the Lag B’Omer festival.
- The United Nations warned that if the military coup and coronavirus outbreak continue to persist in Myanmar, it could force almost half the country’s population to fall below the poverty line of about $1/day.
- The Central Bank of Nigeria removed the boards of First Bank Nigeria Holdings and its subsidiary following its appointment of a new CEO without regulatory approval. The bank is Nigeria’s third largest by assets and is considered systemically important.
- Ties between Russia and Eastern European countries have deteriorated as mistrust over Russian influence has led these countries to distance themselves from Moscow.
- Regulators in the European Union accused Apple (AAPL, $133.48) of acting like a monopoly by requiring music streamers to use the in-app pay system to sell digital content and taking a commission. Additionally, regulators complained that Apple “distorted competition” by limiting the way app developers can inform users about cheaper alternatives to subscribe. The accusation adds further scrutiny to the digital giant already facing a similar lawsuit brought about by Epic Games.
Economics and policy: Senator Joe Manchin is concerned with additional spending, new tax thresholds, and a potential ban on menthols.
- Support for the president’s infrastructure plan may have hit a snag after Senator Joe Manchin (D- WV) voiced his discomfort with the price tag. His vote will be crucial to getting the bill passed and he has already stated his apprehension with raising taxes to a level that may make U.S. firms uncompetitive.
- The tax plan proposed by the Biden administration is expected to lower the threshold for the highest income tax bracket. The top income levels are now going to be 452.7K for individuals and 509.0K for families, below the current levels of 523.6K and 628.3K, respectively. Biden plans to raise the tax rate of the top bracket, from 37% to 39.6%, in order to fund the infrastructure package.
- The FDA is working on production standards that, if adopted, would ban menthol cigarettes. The agency is also working on banning any type of flavored cigars. The goal of this regulation is to further prevent people from smoking and therefore reduce the amount of deaths linked to the habit.
- The U.S. Department of Agriculture has informed pork processors to slow down the processing of hogs to 1,106 hogs an hour while worker safety is evaluated.
- Congressional Democrats are pushing to expand Medicare eligibility and drug pricing measures within the infrastructure plan. So far, it doesn’t appear that President Biden will support the proposal.
China: Rising tensions with Australia, PBOC targets Big Tech, and the WHO faces pressure from scientists.
- China has accused Australia of economic coercion as the two sides escalate their war of words. Tensions have risen sharply over the last week or so when two Belt and Road Initiative agreements were cancelled due to concerns that they may conflict with Australia’s foreign policy. In response to Australia’s criticism implying that China’s “militarization of issues” has increased the prospect of war, China claimed that Australia’s perception of a threat is the real reason why the two sides’ relationship has deteriorated as of late. The growing feud between the two countries suggests that China is finding it harder to impose its will on countries aligned with the West.
- In a quest to rein in Big Tech within the country, the People’s Bank of China has called for tech firms to adhere to the guideline of data and lending practices. China has taken a more assertive role in regulating tech firms within its country as it views the industry as a national security concern.
- In response to the crackdown, Alibaba Group Holding (BABA, $234.18) has decided to freeze the pay of its top executives.
- A growing number of scientists have requested that the World Health Organization (WHO) should consider looking into other possible origins of the COVID-19 virus outside of merely animals. It has also emphasized the hypothesis that it originated in a lab shouldn’t be readily dismissed. The organization’s previous investigation concluded that the virus “probably spread” from bats to humans via another animal but concerns about the limited scope of the investigation have led many to question the findings.
COVID-19: The number of reported cases is 149,903,893 with 3,155,755 fatalities. In the U.S., there are 32,261,274 confirmed cases with 574,767 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The FT has also issued an economic tracker that looks across countries with high-frequency data on various factors. The CDC reports that 301,857,885 doses of the vaccine have been distributed with 234,639,414 doses injected. The number receiving at least one dose is 142,692,987, while the number of second doses, which would grant the highest level of immunity, is 98,044,421. The FT has a page on global vaccine distribution. The weekly Axios map shows rising cases in about half the country.
- U.K. medicine regulators released the age breakdown of the rare blood clotting disorder linked to the Oxford/AstraZeneca vaccine. The results show that younger people below the age of 60 are particularly vulnerable to this side effect. That being said, it is extremely rare for people to suffer from blood clots once receiving the vaccine.
- AstraZeneca is still awaiting approval in the U.S. following issues with its data, which has prevented the vaccine from being approved.
- Michigan Governor Gretchen Whitmer has announced a new plan to start reducing pandemic-related restrictions. The plan calls for the rule on remote working to be lifted after 55% of people 16 and over have received their first vaccine shot, and after 60% have received their first dose the late night curfew on restaurants will be lifted and gyms will be able to operate at 50%. When the state reaches 70% vaccinations, the restriction on state gatherings and face mask order will be lifted.
- New York Mayor Bill de Blasio has announced that he aims to fully reopen the city by July 1.
- India continues to struggle to contain the virus as high caseloads and a faltering vaccine rollout have prevented officials from slowing the virus. The virus has become so widespread that the U.S. has told its citizens to leave India.
- Oregon and Washington have seen a spike in COVID-19 cases. This rise appears to be targeting younger people aged 29 years and younger.
The CDC will allow cruise ships to sail in U.S. waters by mid-July. There will be several guidelines that cruises will have to follow but the department will allow voyagers to skip tests if they can show that 98% of the staff and 95% of passengers are fully vaccinated.