Daily Comment (February 4, 2022)
by Patrick Fearon-Hernandez, CFA, and Thomas Wash
[Posted: 9:30 AM EST] | PDF
Good morning. Today’s report begins with U.S. economics and policy, including updates on Ukraine and President Biden’s pick for the FOMC. Next, we discuss the significance of the Beijing Winter Olympics. International news follows, and we conclude with our pandemic coverage.
Economics and policy:
- The Biden administration has accused Russia of trying to fabricate an incident along the Ukraine border to justify an invasion. White House officials alleged Russia planned to release a fake video showing a Ukrainian attack on Russian or Russian-speaking people. Russia has denied the accusation. Following a classified briefing, Senators from both parties are looking to pass a sanctions bill to deter Russia. Although the sides are close to an agreement, there are concerns that progress is not moving fast enough. In Europe, French President Emmanuel Macron plans to meet with the leaders of Russia and Ukraine next week. Macron will seek to act as a mediator for the two sides to avoid a conflict.
- Russian President Vladimir Putin and Chinese President Xi Jinping met in Beijing on Thursday. Following the meeting, Putin announced a 30-year agreement with China to provide the country with natural gas through a new pipeline. The sale of natural gas will be settled in euros and not dollars.
- President Biden’s nominees to the FOMC testified before the Senate on Thursday. Although all the candidates are expected to be confirmed by the Senate, Sarah Bloom Raskin appears to be the most vulnerable to being rejected. Despite previously serving on the FOMC, her work with the fintech company Reserve Trust has been under scrutiny. The company received access to the Federal Reserve’s payment system after Raskin joined its board in 2017. It is the first state-chartered trust company to receive this access. When asked if she personally lobbied the Federal Reserve on the company’s behalf, she stated she did not violate any of the Federal Reserve’s ethical rules.
- 50% of U.S. small companies reported they raised wages in January in order to attract workers, according to the National Federation of Independent Business. Over a quarter of small business owners surveyed stated that they still plan to raise wages over the next few months.
- President Biden intends to extend tariffs on solar cells and panels imposed by the prior administration but loosen some restrictions. The new tariff restrictions will exclude bifacial solar panels, which are needed to expand solar capacity. The tariffs were scheduled to expire on Sunday but have been extended for another four years.
- As the winter storm passes from Texas, electricity demands are expected to soar as more households turn up the heat. Due to last year’s statewide power outage, residents are fearful that the Texas power grid will not be able to support the demand. So far, the grid has held up as strong winds have allowed wind farms to contribute to the state’s electricity supply.
- The 2022 Beijing Winter Olympics kick-off on Friday. Chinese President Xi Jinping will look to use the game to burnish his country’s reputation as a global power. Recently, China has come under increased scrutiny from abroad following its crackdown on Hong Kong protesters and has been accused of mistreating Uyghurs, a Muslim minority group. Additionally, there have been concerns that the government has ramped up its surveillance, leading some athletes to purchase burner phones. In protest of China’s human rights violations, several countries, including the U.S., have decided to boycott the games by not sending diplomats. Only a few countries have joined the boycott. That being said, the winter games will probably be an opportunity for Xi to show that China remains an attractive destination for foreign tourists and investors, despite its increased crackdown. Assuming that there is no controversy, similar to the Mexico City Olympics in 1968, we suspect the event will go off with little contention.
- The Spanish Parliament passed a controversial labor reform bill on Thursday, forcing the country to reduce the proportion of the Spanish workforce on temporary contracts. The bill’s passage allowed Spain to unlock additional funding from the EU Recovery Fund.
- Chilean President Sebastián Piñera selected Rosanna Costa to take over the Bank of Chile. Costa will be Chile’s first female central bank chief. She was nominated based on her experience and support for inflation control.
- After the Bank of England raised rates in back-to-back meetings, central bank governor Andrew Bailey tried to quell fears of market uncertainty. In an interview with CNBC, he stated the rate hikes would likely continue at a gradual pace as the BOE tries to stem rising inflation. On Thursday, the central bank raised rates by 25 bps. Although the rate hike was in line with expectations, four out of the nine members of the Monetary Policy Committee voted for a 0.50% raise, suggesting the committee has become increasingly hawkish. In a separate interview with the BBC, Bailey urged workers not to demand big pay raises as it could make inflation harder to contain. The comments indicate the BOE may also view their labor market as being too tight.
COVID-19: The number of reported cases is 388,686,859 with 5,715,128 fatalities. In the U.S., there are 75,994,966 confirmed cases with 897,377 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The CDC reports that 669,540,355 doses of the vaccine have been distributed with 541,410,847 doses injected. The number receiving at least one dose is 250,593,665, the number of second doses is 212,336,183, and the number of the third dose, the highest level of immunity, is 88,983,833. The FT has a page on global vaccine distribution.
- Lawmakers in Austria successfully passed legislation that could pave the way for making vaccinations mandatory for adults. If signed into law, Austria would be the first Western democracy to legally require vaccination and could provide a test case for other countries around the world.
- Several states will allow their health emergency declarations to expire on February 15. The move will allow states to reduce pandemic restrictions, such as mask mandates, and in some cases, lead states to limit the release of public health data.
- The omicron sub-variant has started to make up a growing portion of South Africa’s COVID-19 cases. The variant jumped from making up 4% of the cases in December to 23% in January.