Daily Comment (August 26, 2020)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
It’s a pretty quiet news day today, which is probably fitting for the dog days of summer. Unfortunately, the lack of news also means there’s still no discernible progress on the next coronavirus relief bill in Congress. Another negative is that Hurricane Laura is bearing down on the Gulf Coast. We are also getting reminders that the U.S.-China relationship remains tense enough to be a potential threat to the markets. We outline all the key news below.
United States-China: According to new reporting by the Wall Street Journal, the July demand by the U.S. that China close its consulate in Houston also included a demand that China remove all of its active-duty military officers conducting research in the U.S. under academic guise. The administration has become increasingly concerned that those military members, with the help of diplomats in China’s consulates, are a key method by which the People’s Liberation Army is trying to soak up sensitive U.S. technologies. Separately, a prominent Chinese economist and government advisor said China should refuse to export medicines and drug precursors to the U.S. in retaliation for U.S. restrictions on semiconductor sales to Chinese companies. Finally, the American Chamber of Commerce in Shanghai warned of significant harm to U.S. firms operating in China if President Trump’s recent executive order on WeChat is applied too broadly. According to a survey of its members, the Chamber said that a broad ban on U.S. citizens and companies transacting with the Chinese chat messaging and commercial platform would mean that almost 90% of U.S. firms in China would find it harder to communicate with staff and local authorities.
China: Experts are warning that President Xi’s latest “anti-corruption” purge may be intended to help Xi be named Communist Party Chairman—a title that hasn’t been used in decades. Taking on the same title held by Chairman Mao would in turn help Xi hold on to power beyond his second term.
Hong Kong: As the government continues to crack down on political protests following the introduction of Hong Kong’s new security law in June, two pro-democracy lawmakers have been arrested for allegedly participating in anti-China demonstrations last year. The two legislators, Ted Hui and Lam Cheuk-ting of the opposition Democratic Party, were detained early today.
Sweden: Alarmed by Russia’s aggressive territorial moves and military exercises, the Swedish government has adopted a heightened state of military readiness and is beefing up its defenses. The country’s military readiness is now reportedly at its highest since the early 1990s.
India: Reserve Bank of India Governor Shaktikanta Das has warned that India’s state-dominated banking system will need to push ahead with an infusion of funds to withstand the country’s deepening coronavirus crisis.
Lebanon: Saad Hariri, a three-time former prime minister, made clear on Tuesday that he is not interested in taking the job again and forming a new government amidst the political turmoil touched off by the country’s recent port explosion disaster and economic crisis. “Certain political forces are still in a state of severe denial of the reality of Lebanon,” he said in a statement, a nod both to his lack of support and the political establishment’s resistance to meaningful reform.
Hurricane news: Tropical Storm Laura was upgraded to a hurricane, with a projected landfall around the Texas-Louisiana border late Wednesday or early Thursday. As we mentioned in yesterday’s report, the storm could push many people into emergency shelters for a significant period. If so, it could constitute as a “super-spreader event” and spark a rise in national coronavirus cases in the coming weeks. Separately, oil and gasoline futures have strengthened in response to the storm, based on concerns that it could force temporary production shutdowns.
COVID-19: Official data show confirmed cases have risen to 23,930,649 worldwide, with 820,246 deaths and 15,606,094 recoveries. In the United States, confirmed cases rose to 5,779,707, with 178,535 deaths and 2,053,699 recoveries. Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.
- Newly confirmed U.S. infections rose slightly to 38,200 yesterday, although the national trend continues to moderate and the rolling seven-day average continues to decline. However, some locations, including rural Illinois and the University of Missouri in Columbia, are facing worrisome surges.
- Although infection control in some countries has been helped by quarantining arriving international travelers in hotels for a period, authorities are now finding that the system is subject to failure.
- In Australia, for example, officials believe virtually all of the recent infections in and around Melbourne can be traced to two hotels that were part of the country’s quarantine program. Failures apparently included security guards who weren’t told they were watching for infected people and staff who didn’t regularly use masks.
- Authorities have already overhauled the program, putting police and the prison agency in charge of supervising guests and banning international flights into Melbourne to reduce demand for rooms.
- Highlighting the continued dearth of business travel it expects even after the pandemic ends, American Airlines (AAL, 13.14) said yesterday it would shed 19,000 workers on October 1, as soon as layoff restrictions tied to its federal crisis funding end.
Foreign Policy Response
- The German government announced that wage subsidies for workers furloughed by the pandemic will be extended by 12 months to the end of 2021, in contrast with most other European countries, whose programs are set to expire in the coming months. The government will also extend a program providing grants to companies to help them cover their fixed costs and a provision allowing firms to avoid filing for bankruptcy if they can’t service their debt.
- In new proposals to help British homeowners having trouble paying their mortgages during the crisis, the U.K. Financial Conduct Authority said lenders must continue to provide repayment relief support measures even after the October 31 expiration of a program giving borrowers the right to claim a three-month payment holiday. After October 31, lenders must consider the appropriateness of different “long- and short-term” measures, which could include extending the repayment term of a mortgage to reduce the monthly repayments or restructuring loans.
- While the popular perception is that left-of-center political leaders are more apt to support stricter lockdown measures to contain the virus, South Korea shows that’s not necessarily the case everywhere.
- With COVID-19 cases rising for nearly two weeks straight, the majority of South Koreans want the nation’s maximum social-distancing measures imposed, and so do the country’s opposition conservative lawmakers and some medical associations.
- The holdouts are South Korea’s left-leaning President Moon Jae-in and the public health architects of one of the world’s successful virus responses, backed up by small businesses and government economic advisers.