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.

 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.


 Economic Impacts

 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.

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