Daily Comment (August 3, 2021)

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with a review of various U.S. developments related to fiscal policy, the labor market, and the natural gas market.  We discuss several international items that could affect the financial markets today.  Finally, we take a look at the latest news related to the coronavirus pandemic.

U.S. Fiscal Policy:  New details are finally emerging on the 2,700-page, $1 trillion “hard” infrastructure bill that a bipartisan group of senators agreed to Sunday night.  Among the key funding provisions, the bill would provide:

  • $110 billion in funding for roads, bridges, and similar major projects, as well as approximately $11 billion for highway and pedestrian safety upgrades
  • $39 billion to modernize and make public transit more accessible to the disabled and elderly.  Significant chunks of that money will go to major city transit systems, like New York City’s, based on federal funding formulas.
  • $66 billion for rail maintenance, modernization, and expansion, most of which will go to Amtrak.
  • $42 billion for ports and airport upgrades
  • $65 billion for broadband infrastructure and development
  • $55 billion for water systems
  • $73 billion to upgrade and expand the nation’s electricity grid

U.S. Labor Market:  A hearing officer with the National Labor Relations Board has reportedly recommended nullifying the results of a closely watched vote in which warehouse workers employed by Amazon (AMZN, $3,331.48) in Alabama rejected a plan to join a union.  If a regional NLRB director reviewing the decision agrees, a new vote to unionize could be held.

U.S. Natural Gas Market:  Even though the recent heatwave in the West has dissipated, natural gas prices remain high as utilities strive to make up for parched hydropower markets and provide enough electricity for air conditioners.  Importantly, the highest summer gas prices since 2014 have yet to entice producers to send many more drilling rigs into their fields, raising the prospect that supplies will remain tight, and prices will stay high through the end of the summer.

U.S.-China Telecom Equipment Industry:  Just as the U.S. and many of its allies have restricted the use of 5G cellular equipment made by China’s Huawei Technologies because of security concerns, it now appears Beijing is doing the same to Huawei’s Western rivals.  China Mobile Ltd., a government-owned wireless carrier that is the world’s largest by subscribers, in July awarded just 5.4% of its latest 5G-equipment tenders to non-Chinese suppliers, down from 11% in its previous round in 2020.

China:  It appears the Chinese government is opening yet another front in its battle to tame the country’s big technology companies after a state-owned newspaper criticized online gaming as “opium for the mind.”  In response, a number of Chinese tech companies linked to online gaming saw their stocks fall sharply, and social media giant Tencent (TCEHY, $61.32) announced it would heed a request by authorities to restrict how long minors can play its online games.

  • Hours later, the story was no longer accessible on the paper’s website, and the affected stocks recovered some lost ground.
  • All the same, we continue to see growing regulatory risks for any large, powerful Chinese tech firms that the government may see as threatening or aiming to become too independent.
  • More broadly, the government continues to rein in the country’s broader private sector and other economic entities that threaten to embarrass or challenge the government.  Chinese regulators say they will “spare no effort” as part of a clampdown on high-risk financial institutions, including using targeted anti-corruption investigations, amid a flush of liquidity generated by coronavirus-related stimulus and increased fiscal spending.

Beijing Olympic Games:  With just six months to go before the Winter Olympic Games open in Beijing, the People’s Bank of China plans to use the event as a further testbed for its first-in-the-world central bank digital currency, the “digital yuan.”

  • The tens of thousands of athletes and fans descending on the Chinese capital in February will provide an opportunity to test the new currency with foreign participants.
  • Athletes may be given tech-enabled gloves, badges, or uniforms that they can use to spend the digital yuan, also known as e-CNY.  Foreigners will be allowed to open digital wallets and pay with e-CNY, though exactly how they will load their wallets with digital yuan remains to be seen.
  • The further testing of the Chinese currency comes despite the IMF’s warning in a late July blog post that widespread use of cryptocurrencies would threaten “macroeconomic stability” and potentially harm financial integrity through crypto’s links with illicit activity.

Mexico:  A referendum pushed by President Andrés Manuel López Obrador to investigate and prosecute wrongdoing by several past presidents had a participation rate of just 7%. Even though the vast majority of those who did participate voted to advance the investigations, the participation rate was far below the 40% required by law for it to be effective.  The result is, therefore, seen as a rebuke of the president.

Iran:  At an endorsement ceremony marking his official elevation to the presidency, hard-line conservative Ebrahim Raisi said he would take steps to have “unjust” U.S. sanctions lifted, but his priority was to improve the Iranian economy.

COVID-19:  Official data show confirmed cases have risen to 199,099,061 worldwide, with 4,239,882 deaths.  In the United States, confirmed cases rose to 35,133,969, with 613,758 deaths.  Vaccine doses delivered in the U.S. now total 400,674,965, while the number of people who have received at least their first shot totals 191,818,585.  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, 57.8% of the U.S. population has now received at least one dose of a vaccine, and 49.7% of the population is fully vaccinated.
  • As the Delta variant of the virus continues to spread and CDC studies show that even vaccinated people can transmit it (despite being well protected from serious illness), more local governments are reimposing mask requirements in indoor public settings.  Starting today, seven counties in Northern California will reimpose the requirement, just as Sacramento and Los Angeles counties did earlier.  In addition, Louisiana will reimpose a similar mask mandate starting on Wednesday.
  • Sen. Lindsey Graham (R., S.C.) has tested positive for COVID-19 despite being vaccinated, raising concerns about the highly transmissible Delta variant on Capitol Hill.
    • Graham and other senators were on a houseboat belonging to Sen. Joe Manchin (D., W.Va.) for a bipartisan get-together on Saturday, according to attendees. Mr. Graham started feeling sick on Saturday night and went to the doctor Monday morning.
    • Graham described his symptoms as mild—similar to a sinus infection—and credited the vaccine for ensuring he wasn’t more seriously ill.
  • In China, authorities are rushing to trace and control the country’s first widespread appearance of the Delta variant, as its worst coronavirus outbreak in more than a year spreads to at least 14 provinces.  The National Health Commission today reported 83 locally transmitted symptomatic infections.  That takes the total number of infections linked with a cluster found last month in Nanjing, the capital of eastern Jiangsu province, to more than 400.

 Economic and Financial Market Impacts

  • The spread of the Delta mutation is already having a noticeable negative impact on economic activity in East Asia, where the pandemic had previously been under control, and little progress had been made on vaccinations.  Sicknesses, social distancing measures, and lockdowns are having an especially large impact on exports and manufacturing in the region.
  • Tourism-dependent emerging economies that were already struggling before the pandemic with stretched finances and ballooning debt are facing their second successive summer season slump as the spread of coronavirus keeps visitors away.
    • Data from the World Tourism Organization show that in the first five months of 2021, global international arrivals were down 85% from the pre-pandemic total of 540 million in 2019.
    • That’s even worse than the same period last year when arrivals were down 65% year-over-year.
  • As young professionals return to their offices in major cities and many remain locked out of the market for single-family homes because of the booming housing market, urban apartment rents are rising fast.  The median rent has risen more than 10% over the past year, according to the homesearch website Apartment List.
    • Stock prices of publicly traded apartment companies have jumped in stride.
    • The FTSE Nareit Equity Apartments Index, which tracks these landlords, is up roughly 42% since January.

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