Daily Comment (August 27, 2021)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Good morning! U.S. equity futures are signaling a higher open this morning. Our report begins with international news focusing on the two attacks at the Kabul airport on Thursday. We also cover U.S. economics and policy, including details about growing support for Fed tapering. China news follows, and we end with our pandemic coverage.
- Two explosions at the Kabul airport killed at least 90 Afghans and 13 U.S. servicemen. On Thursday, Islamic State claimed responsibility for the attack. The blast represents an escalation of tensions in the region and could further complicate President Biden’s efforts to withdraw troops by the August 31 deadline. In response to the attack, President Biden has directed the Pentagon to target ISIS leadership and facilities. The incident highlights growing fears that the Taliban will not be able to control the competing factions within the region after the U.S. has left. This could mean that Afghanistan will turn into another conflict zone in the Middle East. The attack has also put President Biden in a negative light as he has received flak for the hasty and chaotic exit from the region by the U.S. The controversy surrounding the Afghanistan withdrawal could hinder efforts from the Biden administration to pursue policy goals as it struggles to contain the political fallout. The president has already been forced to cancel and delay meetings, and Vice President Kamala Harris was forced to back out of the rally for Governor Newsom.
- In response to the turmoil, House Minority Leader Kevin McCarthy (R-CA) has called for House members to return to vote on delaying the U.S. troop withdrawal. If successful, the vote could force members of Congress to go on record as to whether they backed the extension and could be used for political fodder in future election campaigns.
- The Brazil Supreme Court upheld the constitutionality of a law granting the central bank autonomy. The decision was likely favorable to investors who feared that President Bolsonaro would interfere with monetary policy. Bolsonaro has sought to rein in the central bank after its chief, Roberto Campos Neto, linked an increase in inflation expectations to political infighting.
- The European Central Bank’s revised forward guidance received a lukewarm reception on Thursday after a few members dissented. The dissidents were concerned that the new policy understates the risk of rising inflation and downplays the possibility of reversal. The ECB has stated that inflation will reach its 2% target prior to the bank’s projected horizon.
- Taiwan Semiconductor Manufacturing Co. (TSM, $118.10), the world’s largest contract chipmaker, is raising prices for its chips. The company announced that it will increase the price of its most advanced chips by 10% and its less advanced chips by 20%. The price change is expected to take place later this year or early next year.
- The Cuban government announced that it will recognize and regulate cryptocurrencies for payments on the island. The change appears to address the country’s need for remittances. The country has struggled to get dollars from abroad following stiffer embargo rules imposed by former President Trump. Crypto has been used to avoid sanctions imposed by the U.S.
Economics and policy:
- Louis Fed President James Bullard and Kansas City Fed President Esther George have come out in support of reducing the pace of the Fed’s monthly purchases of $120 of asset purchases. The Fed officials stated they believe the economy has made sufficient progress in its employment and inflation goals. In addition, the two have expressed concern over unintentional consequences of maintaining accommodative policy. As more Fed officials speak openly about monetary tightening, Fed Chair Powell will likely find it difficult to justify maintaining the Fed’s current policy path.
- The Biden administration is considering renominating Fed Chair Powell to lead the Fed and nominating Lael Brainard as the Vice Chair for Supervision.
- The rise in COVID-19 cases may have led to an exodus of workers from the labor market. According to a study by the Federal Reserve Bank of Kansas City, almost 60% of respondents to its August Manufacturing Survey said there has been a drop in the number of applicants per job since May.
- The increase in Afghan evacuees has created a bottleneck at the Dulles International Airport as officials are struggling to vet the incoming refugees.
- The U.S. Supreme Court ended the federal moratorium on residential evictions on Thursday. In its decision, the court ruled that if the moratorium were extended, it would need to be authorized by Congress.
- Democrats are struggling to find a consensus on how to pay for President Biden’s spending agenda. Tax increases and the removal of subsidies are likely to create a divide between the progressives and moderates. Oil lobbyists have already seized the opportunity to push Democrats to keep the tax deduction that they receive in place.
- Following the release of a new set of data produced by the Census Bureau, states are now pushing to count prisoners serving time as living at their listed home address.
- U.S. special climate convoy John Kerry is expected to press Chinese leaders on their commitment to end the financing of coal-fired projects when he goes to China next week.
- Chinese regulators plan to crack down on online celebrity fan culture as part of its campaign to rein in online influence. The internet watchdog will prevent websites from publishing popularity lists and curb the sale of celebrity merchandise. Chinese film star Zhao Wei has already been targeted by regulators.
- China is expected to propose new rules that would ban companies with large amounts of consumer data from going public in the U.S.
- In an attempt to control prices, China stated that it would sell 150,000 tons of metal from its reserve on September 1. The metals will include aluminum, zinc, and copper.
COVID-19: The number of reported cases is 214,711,514 with 4,476,459 fatalities. In the U.S., there are 38,387,116 confirmed cases with 633,591 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 434,582,185 doses of the vaccine have been distributed with 365,767,674 doses injected. The number receiving at least one dose is 202,961,676, while the number of second doses, which would grant the highest level of immunity, is 172,171,009. The FT has a page on global vaccine distribution.
- There have been at least 90,000 children in 19 states that have tested positive for COVID-19 or have come into contact with someone that has tested positive.
- Although the majority of fully vaccinated people in Britain have expressed a willingness to get the third booster shot, there is a noticeable faction that has expressed concern over the long-term effects of the vaccine.
- New Zealand has extended lockdown measures as the Delta variant continues to spread throughout the country.
- A peer-reviewed study published by the British Medical Journal claimed that people infected with COVID-19 suffered almost 200 times more excess incidents of blood clotting than those who received the first dose of the Oxford/AstraZeneca vaccine.
- Denmark has declared that COVID-19 is under control and will drop all remaining pandemic-related restrictions in September.