Daily Comment (December 1, 2020)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Our Daily Comment today opens with the latest developments as President-elect Biden builds out his policy team. It now appears his nominee for the Office of Management and Budget (OMB) is generating congressional pushback. We then review key international developments, including a renewed effort by the Russian government to silence opposition leader Aleksei Navalny, who was poisoned with a nerve agent this summer. We end with the latest positive coronavirus news. As we discuss below, the positive prospects for vaccines coupled with the likely continuance of stimulative monetary and fiscal policies continue to buoy risk assets so far today.
U.S. Presidential Transition: Reports indicate President-Elect Biden will name Brian Deese to be the director of his National Economic Council. Deese first joined the council after working on Barack Obama’s presidential campaign in 2008, eventually rising to deputy director. He then served as Deputy Director of the OMB and was later promoted to Senior Adviser to the President, a position that focused in part on climate change and energy issues. He played a central role in negotiating the international climate-change agreement that was reached in Paris in 2015. He also worked on issues related to the auto and financial industries, as well as the Supreme Court. Since leaving the White House, Deese has worked at BlackRock as global head of sustainable investing.
- Meanwhile, Biden’s plan to nominate Neera Tanden to head the OMB is already stirring tensions on Capitol Hill, where Republicans say her past comments will threaten her confirmation and undercut the new president’s pledge to calm political waters.
- In any case, Biden’s appointments to date reflect a strong preference for experienced policy hands with whom Biden has already had a personal relationship.
United States-European Union: Officials from the EU continue to plan enthusiastically for a reset of EU-U.S. relations after Biden is inaugurated as president. EU ambassadors yesterday supported European Council President Michel’s idea of inviting Biden to an EU-U.S. summit next year. According to the report, the ambassadors discussed the future of transatlantic relations and “concurred on the need to reinvigorate the transatlantic partnership, while continuing to pursue an agenda to make the EU stronger and more autonomous.”
United States-China: Without providing details, the Chinese government has accused U.S. officials of harassing Chinese airline and shipping crews that arrive in the U.S. by questioning whether they are members of the Communist Party. U.S. officials didn’t confirm the moves, but it is plausible that this is another instance of intensifying U.S. pressure on China and its effort to plant spies and agents of influence in the U.S. Application forms for foreign nationals seeking U.S. visas for temporary travel to the country, including crew member visas, have included a question on whether the applicant is “a member of or affiliated with the Communist or other totalitarian party.”
NATO-China: In yet another example of increasing tensions between the developed democracies and China, a study commissioned by NATO Secretary-General Jens Stoltenberg says the alliance should devote much more of its time and resources to security threats posed by Beijing, while at the same time maintaining its traditional focus on deterring Russian aggression.
Russia: Investigators in Moscow have launched a probe into opposition politician Aleksei Navalny regarding an April interview in which he allegedly called for the forcible change of Russia’s constitutional order. In the interview, Navalny criticized the Kremlin for rejecting his team’s proposal to provide Russian families and small businesses with financial support during the coronavirus pandemic and said the authorities in Russia “must be overthrown right now…most likely by force” for neglecting the needs of citizens. The interviewer then directly pointed to the statements as being merely Navalny’s thoughts, not open calls to overthrow the government, which Navalny confirmed.
COVID-19: Official data show confirmed cases have risen to 63,384,168 worldwide, with 1,470,971 deaths. In the United States, confirmed cases rose to 13,546,787 with 268,103 deaths. 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 totaled a relatively modest 157,901 yesterday, but hospitalizations rose to yet another record of 96,039. The number in intensive care rose to a record of 18,505, prompting further alarm among state and local health officials. In California, Governor Newsom pointed to rising hospitalizations and increasing positive test rates as he warned of possible new stay-at-home orders in the state.
- A new study by the U.S. Centers for Disease Control and Prevention found evidence of COVID-19 infection in 106 of 7,389 blood donations collected by the Red Cross from mid-December 2019 to mid-January 2020. The study suggests the virus was spreading in the U.S. about a month earlier than previously known.
- As work on COVID-19 vaccines continues apace, a panel of vaccine experts advising the U.S. government is expected to recommend today who should get the initial limited supplies of the shots. Expected to be first in line: health workers treating coronavirus patients and nursing-home residents.
- Pfizer (PFE, 38.31) and BioNTech (BNTX, 124.24), as well as their vaccine rival Moderna (MRNA, 152,74), formally applied to the European Medicines Agency for emergency use of their coronavirus vaccines in the EU. The agency plans to make a judgment on the Pfizer/BioNTech vaccine by December 29 at the latest, while it will issue its ruling on Moderna’s candidate by January 12.
- The timeline potentially means that the distribution of a vaccine in the EU won’t happen until January.
- The vaccine being developed by AstraZeneca (AZN, 52.94) and Oxford University won’t be reviewed in the EU until later in January.
- Sweden’s public health agency has made another policy U-turn, bowing to critics who argue it has underestimated the potential for asymptomatic transmission of COVID-19. The agency now recommends that children who live with someone infected by the disease should stay at home, contrary to previous advice that they should go to school or daycare. The move was a reversal of the October recommendation that adults who live with an infected person should receive instructions from a doctor, rather than going to work as normal.
- Scientists investigating why COVID-19 sometimes produces prolonged, “long-haul” disabilities think it may trigger postural orthostatic tachycardia syndrome, also known as POTS. The good news is that there are protocols and treatments for POTS. However, progress is often quite slow, and it’s rare for POTS to completely go away, even with treatment.
- According to real estate analysts, the recent surge in COVID-19 cases across the U.S. has led to an uptick in Americans resuming work at home after some momentum had been building for returning to offices.
- In its latest Global Economic Outlook report, the OECD warned that even though the new coronavirus vaccines offer hope for the global economy, there are still many pitfalls to overcome, and overall economic activity is unlikely to reach its pre-pandemic level before the end of next year.
U.S. Policy Response
- In a testimony prepared for delivery at a congressional hearing today, Federal Reserve Chair Powell will say the central bank’s actions to backstop credit markets after the coronavirus convulsed Wall Street this past spring had unlocked almost $2 trillion to support businesses, cities and states.
- The prepared testimony makes no mention of Treasury Secretary Mnuchin’s decision not to extend five of those programs past the end of the year, but since Mnuchin is also scheduled to testify at the hearing, legislators are likely to probe the implications of cutting off those programs in just four weeks.
- Powell is also expected to caution that even though the prospects for safe and effective vaccines are positive, there are also many implementation risks in terms of manufacturing, distribution, and vaccination uptake. While all that is true, it’s important to remember that the more officials remain cautious about implementation risks, the more likely they are to keep in place the current economic support measures. For example, many will continue to push for yet another fiscal relief package. That suggests 2021 could be a year when widespread vaccinations allow for a major economic recovery, in addition to continued fiscal and monetary support. That goes far toward explaining investors’ continued enthusiasm for equities and other risk assets.
Foreign Policy Response
- Canada’s budget deficit is growing at the fastest rate among developed nations, as its officials bet an aggressive approach will pay off in regaining lost jobs.
- Officials argue that the country can afford to pour money into the economy while borrowing costs are historically low.
- However, some economists warn that the heavy spending could lead to a fiscal crisis, and one major ratings firm has already stripped the country of its triple-A rating.