by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
In today’s Comment, we open with new developments that suggest Democrats in Congress could have more options to push through their economic and tax agendas than previously thought. Increased fiscal stimulus, rapidly expanding vaccinations, and economic reopening continue to buoy risk markets, as we saw with yesterday’s record highs, even with the risk of higher taxes and coronavirus mutations that could slow progress against the disease. We also discuss key news from overseas and the latest on the pandemic itself, including the International Monetary Fund’s latest projection of how fast the global economy will recover from the crisis.
U.S. Fiscal Policy: The Senate’s nonpartisan parliamentarian ruled in favor of a Democratic effort to pass additional legislation through the process of reconciliation, which only requires 50 votes to pass a bill, rather than the 60 needed to overcome a filibuster. The ruling turns on the idea that any time a fiscal year budget resolution is amended, it can be passed via reconciliation. That opens the door for Democrats to approve more fiscal measures along party lines in the Senate this year.
- Meanwhile, several Senate Democrats offered proposals on how U.S. companies should be taxed on foreign income and export income and how foreign companies should be taxed on U.S. income. In some respects, the proposals are more friendly to companies than the plan released by President Biden, but it also leaves some important details for later debate. Officials in the Biden administration have signaled they are open to a deal regarding taxes to pay for the president’s infrastructure and other plans.
- To create further space for raising revenues, Treasury Secretary Yellen formally proposed a global minimum tax rate on corporations. The idea is to prevent a race to the bottom on tax rates as different countries try to lure new business.
U.S. Antitrust and Technology Law: Trade groups representing small hardware stores, office suppliers, booksellers, grocers, and others, along with business groups from 12 cities, are forming a coalition to lobby Congress for stricter antitrust laws, including measures that could force Amazon (AMZN, USD, 3,226.73) to spin off some of its business lines. The move highlights the growing regulatory risks facing high-flying technology companies.
United States-China-Japan: In a sign that the Japanese government is willing to help the U.S. pressure China over its human rights record and other transgressions, Japanese Foreign Minister Motegi used a 90-minute phone call with Chinese Foreign Minister Wang to press for improved treatment of ethnic Uyghurs in Xinjiang. In a statement after the call, the Chinese government warned Japan not to interfere in its internal affairs or be influenced by countries that are “prejudiced against China.”
India-Pakistan: In back-channel negotiations launched in January and facilitated by the United Arab Emirates, Indian and Pakistani military leaders are preparing the ground for peace talks between the two countries’ prime ministers. Although peace deals have been discussed between the two nuclear powers in the past, they have faltered. If the new negotiations lead to a lasting deal, it could have major implications for the geopolitics of South Asia. For example, not only would a peace deal promote trade ties between India and Pakistan, but it could reduce India’s incentives to work with the U.S. in its competition with China. Indeed, China may well have played a key role in nudging its ally Pakistan toward better ties with India.
United States-Iran: Diplomats from Iran, France, Germany, the U.K., Russia, and China will meet in Vienna today to discuss reviving the 2015 deal limiting Iranian nuclear weapons, with the U.S. taking part indirectly from a separate location.
Russia: Jailed opposition leader Alexei Navalny, who said several other inmates in his quarters have come down with tuberculosis, has himself been moved to a medical ward after complaining of a cough and fever. Navalny had complained that he was not being afforded medical care by prison authorities, despite growing health issues. Now, the question arises as to whether the Putin government purposefully exposed him to tuberculosis, hoping he would contract it.
Jordan: The court of King Abdullah II announced that former crown prince Hamzah, accused of plotting with foreign countries against the government, met with senior members of the royal family and pledged his loyalty. It’s not yet clear whether the kingdom has really nipped Hamzah’s opposition in the bud or whether it will have continuing issues with Hamzah’s accusations of corruption and incompetence.
Central Bank Digital Currencies: Today’s Wall Street Journal carries an informative review of China’s effort to create an official digital currency. For more on the geopolitics of this trend around the world, see our ongoing Weekly Geopolitical Report series here.
COVID-19: Official data show confirmed cases have risen to 131,907,441 worldwide, with 2,862,885 deaths. In the United States, confirmed cases rose to 30,786,016, with 555,619 deaths. Vaccine doses delivered in the U.S. now total 207,891,395, while the number of people who have received at least their first shot totals 107,515,428. 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 78,000 yesterday, although some of the increase apparently reflected several states catching up after not reporting cases over the Easter weekend. More encouraging, the seven-day moving average of new infections, at 63,283, is now only slightly above the 14-day moving average of 63,260. New deaths related to the virus, 603 yesterday, remain much lower than at the beginning of the year. More than 32% of people in the country have received at least one dose of a vaccine, while almost 20% are fully vaccinated.
- President Biden today will announce that all U.S. adults should be eligible for a coronavirus vaccine by April 19, speeding up a timeline he set last month. Biden had previously called for states and territories to make all adults eligible for a shot by May 1. The president will also say that the U.S. has surpassed 150 million shots since he took office.
- Moderna (MRNA, USD, 129.91) has struck a deal for 80 million additional doses of its vaccine to be produced by contract drug manufacturer Catalent (CTLT, USD, 105.75). The expansion will help Moderna reach its goal of supplying an additional 100 million doses to the U.S. by the end of May and another 100 million doses by the end of July, all of which would help ensure that the U.S. has ample vaccine supplies in the coming months.
- Even the U.S. Army is getting into the vaccine game, as it begins small-scale testing of a compound it developed at the Walter Reed Army Institute of Research in Maryland. Initial results of the study could become available by midsummer. If the data are positive, the Army likely will try to join with a drug company to further test and develop the vaccine.
- British Prime Minister Johnson said the U.K. will begin to relax more public-health restrictions starting next week and remains on course to fully reopen its economy by the summer, in contrast with the worsening picture elsewhere in Europe.
- Ground zero of the pandemic shifted to India on Monday, as it recorded more than 100,000 fresh cases for the first time, topping the daily totals everywhere else in the world. New infections in India are now even greater than in Brazil. The Indian government is therefore locking down neighborhoods and restricting travel again, even as it tries to ratchet up its vaccination program.
- North Korea said it would not participate in the Tokyo Olympic Games this summer, citing concerns about the pandemic.
Economic and Financial Market Impacts
- In its flagship World Economic Outlook publication, the IMF boosted its forecast for global economic growth to 6.0% in 2021, up from 5.5% previously, as the overall recovery from the pandemic proceeds faster than expected. The organization also boosted its forecast for 2022 to 4.4% from 4.2% previously.
- U.S. gross domestic product is projected to expand 6.4% this year and regain its pre-pandemic size after an estimated contraction of 3.5% last year. The IMF earlier projected 5.1% growth in 2021.
- China’s economy is projected to expand 8.4% this year, up from an earlier forecast of 8.1%.
- In China, the government’s effort to get its people spending again got a boost over the three-day traditional tomb-sweeping holiday, with official and private data showing travel back up to pre-coronavirus levels by some metrics.