Daily Comment (August 24, 2021)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
In today’s Comment, we begin with the latest developments in Afghanistan. There are disturbing reports that evacuees reaching U.S. facilities in places like Doha are facing horrible conditions. We next review a range of other international and domestic news, including a discussion of how Chinese stocks are posting at least a short-term rebound after being pummeled by recent regulatory moves. We wrap up with the latest on the coronavirus pandemic.
Afghanistan: At a virtual G7 meeting today, foreign leaders, including British Prime Minister Johnson and French President Macron, are expected to urge President Biden to negotiate with the Taliban for an extension of the U.S.-led military withdrawal, even though the Islamist group has said it will not accept any delay. The British have been especially vocal in warning that the risk of attacks against troops and other evacuees will only increase as the current August 31 deadline approaches. If such attacks occur, the situation would become an even greater political debacle for Biden.
- The U.S. military yesterday reported its biggest day of airlifts out of Afghanistan by far, with 28 U.S. flights taking more than 10,000 people out of the country in a 24-hour period.
- Meanwhile, the U.K. has evacuated over 8,600 people since August 14, including around 2,000 in the past 24 hours. British Defense Secretary Wallace said that if the airport were to close, the U.K. would continue to process refugee applications from Afghans if they could get out of the country by other means.
- Meanwhile, new reports indicate that even when evacuees arrive at facilities such as the Al Udeid Air Base in Doha, the facilities are not prepared for them, leaving many in squalid, unsanitary conditions.
China: Chinese technology stocks continued their Monday rally by jumping further today, based partly on strong results and positive comments from JD.com (JD, 65.73). Addressing Beijing’s tough regulatory crackdown on big, fast-growing tech firms, JD retail chief Xu Lei said, “We believe that the regulatory goals are conducive to JD’s long-term business growth. So far, our business maintains steady growth whilst committing to better compliance policies.” Other reports suggest Chinese officials may have made some conciliatory comments today in order to calm the markets.
- All the same, we see multiple reasons to think Beijing’s clampdown is real, long-lasting, and likely to be quite extensive over the broad Chinese economy.
- We continue to see growing regulatory risks not only for Chinese technology firms but for the even broader private sector. Over time, the result will likely be slower economic growth, lower profitability, increased taxation for private firms and individuals, and less innovation.
U.S. Fiscal Policy: Democratic leaders in the House last night postponed a procedural vote that would allow the bipartisan, $1 trillion “hard” infrastructure bill and the Democrats’ $3.5 trillion antipoverty and climate proposal to move forward together. They now plan to hold that vote today, although it remains unclear how the leadership will resolve the standoff between progressives, who want the bills to pass simultaneously, and moderates, who want to prioritize the hard infrastructure program.
Mexico: A Sunday night fire at a Pemex oil platform in the Gulf of Mexico has left five people dead and slashed the country’s oil output by almost a quarter. According to the company, about 420,000 barrels of daily oil output remained offline on Monday, which could help put some additional upward pressure on global oil prices this week.
Commodity Markets: While renewed optimism about Chinese growth prospects is boosting oil and industrial metals prices today, the extreme heat and drought in much of the U.S. are threatening crops and buoying agricultural prices. Even though corn, wheat, and soybean prices remain lower than when they spiked in the spring, prolonged heat and dryness could well boost prices back toward those levels or even higher.
- North Dakota and Minnesota, in particular, are experiencing near-record lows in soil moisture, according to data from the National Oceanic and Atmospheric Administration. As a result, many crops planted this spring are wilting. About 63% of the U.S. spring wheat crop is in poor or very poor condition, versus 6% at this time last year, according to Agriculture Department data.
COVID-19: Official data show confirmed cases have risen to 212,686,320 worldwide, with 4,444,735 deaths. In the United States, confirmed cases rose to 37,941,620, with 629,564 deaths. Vaccine doses delivered in the U.S. now total 428,528,965, while the number of people who have received at least their first shot totals 201,718,587. Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.
- According to the latest CDC data, 60.8% of the U.S. population has now received at least one dose of a vaccine, and 51.5% of the population is fully vaccinated.
- The FDA yesterday gave full approval for the use of the vaccine from Pfizer (PFE, $49.93) and BioNTech (BNTX, $382.10). Full approval was seen by public health officials as a key step to convince hesitant individuals to get the shot and to encourage employers to mandate it. Indeed, the move was quickly followed by announcements from the Pentagon, the New York City school district, and others that they would begin requiring vaccinations.
- The prospect of reduced personal hesitancy and increased employer mandates raised hopes for faster vaccination progress and reduced infections, helping to boost stock prices yesterday.
- Moderna (MRNA, $411.89), whose two-dose shot uses similar technology as the Pfizer-BioNTech vaccine, said it is still completing rolling data submissions to support its application for full approval. Johnson & Johnson (JNJ, $177.61), which gained emergency authorization for its shot in February, said it plans to file for full approval later this year.
- In Israel, lauded earlier this year for its mass vaccination campaign and success in fully inoculating at least 80% of its adults, the Delta variant continues to drive a new wave of infections and some “breakthrough” cases. The experience underlines the fact that immunity from even the most effective vaccines wanes over time and will require booster shots.
- The U.K. announced it ordered an additional 35 million doses of the vaccine from Pfizer and BioNTech for delivery next year. That brings the U.K.’s total order for the vaccine to 135 million doses, as it prepares to give boosters as people’s initial immunity fades.
- In Japan, the government plans to expand its state of emergency from Tokyo and 12 other areas to eight more prefectures as it looks to quell the country’s largest wave of infections. The additional prefectures will come under the measure from this coming Friday through September 12.
Economic and Financial Market Impacts
- Pandemic-driven port shutdowns continue to limit the movement of goods out of China. In the latest development, delays in deliveries and goods shipments through China’s largest cargo airport are mounting. New coronavirus infections have canceled flights and disrupted the customs-clearance process, resulting in higher air freight prices and more strain on recovering supply chains. Even though operations are reportedly starting again at the port of Ningbo-Zhoushan, which was shut down on August 11 after discovering a single case of COVID-19, the new snarl could further prolong the supply shortages plaguing the global economy and pushing up inflation.
- In Malaysia, which plays a key role in semiconductor packaging and testing, the surge in new infections and the resulting business shutdowns threaten to aggravate shortages of semiconductors and other components that have hammered automakers for months.