by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Today’s Comment opens with various observations concerning monetary and fiscal policy and their implications for U.S. economic growth.  We next look at the new report of a possible U.S. and allied boycott of the 2022 Winter Olympics in Beijing over China’s mistreatment of its Uighur minority.  We also note ominous troop and equipment movements by Russia along its border with Ukraine.  We wrap up with the latest developments regarding the coronavirus pandemic.

U.S. Fiscal Policy:  Jeff Bezos, the Chief Executive of Amazon (AMZN, USD, 3,223,82), threw his weight behind President Biden’s plan to hike corporate taxes and unleash massive new spending on infrastructure and other economic investments.  In a memo to his employees, Bezos wrote, “We recognize this investment will require concessions from all sides—both on the specifics of what’s included as well as how it gets paid for . . . [Amazon] is supportive of a rise in the corporate tax rate.”

• Separately, new reports indicate that the roughly $213 billion for affordable housing in Biden’s proposed infrastructure plan includes a competitive grant program aiming to coax state and county government into easing restrictions on new home construction.
• The proposal targets so-called exclusionary zoning laws that the administration says have inflated housing and construction costs and have locked families out of areas with more opportunities.

U.S. Monetary Policy:  Dallas FRB President Kaplan said it isn’t yet time for the central bank to pull back on its support of the economy.  However, he also said that when it eventually becomes clear that the coronavirus pandemic is abating and the economy is meeting the Fed’s goals, paring back the Fed’s stimulus measures will be important to keep the recovery on track.

United States-China:  As the Biden administration continues to flesh out its China policy and works to build up a network of alliances in Asia to counter China, it turns out that a coordinated boycott of the 2022 Winter Olympics in Beijing over China’s mistreatment of its Uighur minority is under much more serious consideration than previously realized.  Sources indicate that administration officials, including President Biden himself, have brought up the idea multiple times in meetings with allied governments.  It is not clear what form such a boycott might take, and no firm decision has been made.  In any case, this will add to the growing number of stress points between the U.S. and China, which have the potential to catch investors in the crossfire at some point.

United Kingdom:  The British government launched a new regulatory body aimed at policing allegations of anticompetitive behavior among the world’s largest technology companies.  The new Digital Markets Unit will be tasked with making sure tech giants don’t exploit any market dominance to crowd out competition.  As we’ve often warned, such steps around the world are raising regulatory risks, particularly for major U.S. tech firms.

Iran:  A ship believed to be conducting surveillance for the Iranian military off the coast of Yemen in the Red Sea has reportedly been attacked by limpet mines placed on its hull.  No country has claimed responsibility, but the timing of the attack on the first day of multilateral talks in Vienna aimed at reviving the 2015 nuclear weapons deal with Iran will cast suspicion on Israel and Saudi Arabia, both of which would like to disrupt those talks.

Russia-Ukraine:  Concerns about a new Russian conflict with Ukraine remain elevated after Russia transferred large numbers of troops and heavy weapons close to the Ukrainian border in recent weeks, ostensibly for exercises.  Russian separatists in the breakaway Donbas region have also traded fire recently with Ukrainian military forces, leading to the deaths of several Ukrainian soldiers.  Various theories have been considered as to what President Putin is trying to accomplish with the new tensions, including the possibility that he is trying to test President Biden’s resolve.

COVID-19:  Official data show confirmed cases have risen to 132,557,605 worldwide, with 2,876,192 deaths.  In the United States, confirmed cases rose to 30,847,926, with 556,529 deaths.  Vaccine doses delivered in the U.S. now total 219,194,215, while the number of people who have received at least their first shot totals 108,301,234.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections fell to approximately 61,000 yesterday.  Perhaps just as important, the seven-day moving average of new infections came in at 64,662, falling below the 14-day moving average of 65,224.  Deaths related to the virus came in at 896.
• As expected, President Biden announced yesterday that all U.S. adults should be eligible for COVID-19 vaccines by April 19, speeding up a timeline he set last month.  He also urged Americans to be patient and continue taking precautions against the disease as the vaccine rollout continues and new variants spread.
  • According to administration officials, the new target was set only after consulting with state governments.
  • So far, all states except Hawaii said they will be able to meet the new timeline.
• Despite strongly pressing forward with its vaccination program, the White House said it would not support any mandatory “vaccine passport” or federal vaccination database similar to those being considered in some foreign countries.
• In California, Governor Newsome announced that the state would fully reopen its economy on June 15, assuming there is enough vaccine supply for everyone ages 16 and older, and COVID-19 hospitalizations remain low.  Given the size of California’s economy, the complete removal of pandemic restrictions there will likely give a noticeable boost to the nation’s economic data and corporate finances.
• As a reminder that pandemic trends continue to worsen in some other countries, Tokyo Governor Yuriko Koike said the metropolitan government is preparing to request that Japanese Prime Minister Suga apply quasi-emergency measures to the nation’s capital similar to the state of emergency that it exited on March 21.
• In yet another blow to the vaccine from AstraZeneca (AZN, USD, 49.22), its partner Oxford University paused a small trial of the compound on children and teenagers in response to concerns about the rare blood clotting issues observed among some adults who got the shot.
  • Meanwhile, the Serum Institute of India, the world’s largest vaccine manufacturer, said it would resume exports of the AstraZeneca vaccine in June, as long as domestic coronavirus cases decline.
  • India suspended vaccine exports in March in an attempt to balance surging domestic demand with international orders.
• As the European Medicines Agency continues to review Russia’s Sputnik V vaccine for possible use in the EU, sources say the regulator next week will also begin to investigate whether the clinical trials supporting the vaccine met ethical and scientific standards.  If not, the shot would probably not be approved for use in the EU.  Despite some officials’ assurances that Sputnik V is not needed in Europe, disapproval could exacerbate the current shortage of potential doses in the bloc.  Just as important, disapproval would be a black eye for Russia and increase EU-Russia geopolitical tensions.

 Economic and Financial Market Impacts

• Jamie Dimon, the Chief Executive of JPMorgan Chase (JPM, USD, 152.54), predicted in his widely read annual letter that “euphoria around the end of the pandemic,” high excess savings, enormous fiscal stimulus, and a potential infrastructure program will spark strong economic growth in the U.S. over the coming year.  Indeed, Dimon wrote, “It is possible that we will have a Goldilocks moment — fast growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much).”  In particular, Dimon argued that if this scenario plays out, today’s high valuations for equities would be justified.

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