Daily Comment (August 6, 2021)

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

[Posted: 9:30 AM EDT] | PDF

Good morning, all!  U.S. equities appear to be headed for a flat open this morning.  We begin with a discussion about the effect the new variant may have on the recovery.  Our international news coverage includes escalating tensions between Israel and Lebanon and India’s removal of a controversial tax.  U.S. economics and policy news are up next, with details about the infrastructure bill.  China news follows, and we will end with our pandemic coverage.

State Labor Force: As new COVID-19 cases spread throughout the country, there may be a glimmer of hope that the recovery will not be significantly affected.  Although infections are rising throughout the U.S., most of this increase has been concentrated within the Southern region.  Average daily cases per 100,000 in the South are almost double its nearest competitor.  Despite the increase in cases, the political situation in the South makes the likelihood of new restrictions doubtful.  As a result, this region should remain relatively stable regardless of the rise in infections.  Additionally, the fact that southern states have the lowest vaccination rates compared to the rest of the country suggests that hospitalization rates will likely be manageable for other parts of the country.  Hence, the chances of another lockdown are relatively small.

Despite having higher infection rates, the South has seen a faster labor force recovery than its peers.  As of June, the labor force in the Southwest and Southeast regions has returned to their January 2020 levels.  Although there have been new restrictions imposed in certain states, most notably in New York, it should be worth noting that these states are more prepared than they were in December of last year when the country saw a similar uptick in cases. We believe that although the employment data may be relatively weak in the coming months, the impact of the variant on the labor market, as well as the broader economy, may not severely derail the recovery.  That being said, the spread will likely not ease concerns of potential workers who are sitting out of the labor market until the pandemic is better controlled.

International news: 

  • Prime Minister Narendra Modi’s government removed a controversial tax that would allow the government to impose taxes retrospectively on foreign investment. The move comes as India struggles to get its economy back on track following pandemic-related setbacks.
  • On Wednesday, Israel carried out airstrikes in Lebanon. The attack was in response to a barrage of rockets launched from southern Lebanon into northern Israeli territory. Israel has attributed the attack to Palestinian terrorist groups operating within Lebanon. On Friday, Hezbollah responded with missiles of their own toward military outposts along the border of the two countries.  In its defense, Hezbollah explained that its response was due to Israeli airstrikes within the country that killed two of its operatives.
  • An Eyewitness report suggests that Tigrayan forces have taken control of Lalibela. The town is known for its orthodox churches and is regarded as a culturally important site by the United Nations. The report has not been verified.
  • Brazilian President Jair Bolsonaro’s request to have printed ballots in case of an electoral challenge was denied by the Brazilian congressional committee. Bolsonaro has argued that electronic voting machines cannot be trusted and warned that he may not accept the result of the elections if he loses. Over the last few months, Bolsonaro has seen a significant drop in popularity due to his handling of the pandemic and the economy. His insistence on printed ballots appears to be a way to delegitimize the election in case he is defeated.

Economics and policy:


  • Antitrust regulators in China are preparing to impose a $1 billion fine on food delivery platform Meitaun (MPGNY, $54.97). Regulators have accused the firm of using its position to disadvantage small companies.  The latest fine represents a larger crackdown by Chinese authorities as a way to reign in tech firms.
  • Australia is expected to introduce new powers that will allow it to target individuals who are associated with human rights violations. The proposal is believed to be aimed at Beijing, following its treatment of Uyghurs and dissidents in Hong Kong. Those believed to be affiliated with human rights violations could be subject to sanctions and a travel ban.
  • Chinese semiconductor foundry company SMIC (0981, HK$28.15) plans to build two new manufacturing plants in Beijing and Shanghai. The new plants are part of China’s broader goal of being more self-reliant. However, possible U.S. restrictions could prevent it from receiving the production equipment these factories need to operate.

COVID-19:  The number of reported cases is 200,939,775 with 4,267,859 fatalities.  In the U.S., there are 35,440,509 confirmed cases with 615,320 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 403,047,945 doses of the vaccine have been distributed, with 348,966,419 doses injected.  The number receiving at least one dose is 193,199,353, while the number of second doses, which would grant the highest level of immunity, is 165,637,566.  The FT has a page on global vaccine distribution.

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