Daily Comment (February 12, 2021)

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

[Posted: 9:30 AM EST] | PDF

We have a plethora of recent multimedia offerings.  First, our new chart book, which recaps the changes we made to our Asset Allocation portfolios, is available.  As we noted Wednesday, a new Confluence of Ideas podcast was posted. Being Friday, there is a new Asset Allocation Weekly, chart book, and podcast.  You can find all this research and more on our website.  Due to Monday being President’s Day, we will not be publishing a report.

Good morning!  Equity futures are slightly lower this morning.  Our coverage begins with European news, particularly regarding EU and Russia relations.  We then discuss the policy and economic news.  An update on China comes next, followed by pandemic coverage.  We conclude the report with a roundup of international items.

Russia and Europe divorce? Following the detainment of Putin foe and Kremlin critic Alexei Navalny, the West and Russia have been at loggerheads.  The arrest has been viewed by the West as anti-democratic, while Russia views the issue as an internal matter.  Tensions were on display following a contentious exchange during a joint news conference that included European Foreign Minister Josep Borell and Russian Foreign Minister Sergei Lavrov.  During the exchange, Borell was blindsided with questions about the EU human rights record and baited into condemning the U.S.’s embargo on Cuba.  Afterward, Borell’s abysmal performance at the press conference led to calls for his resignation.  Angered by Russia’s blatant attempt to embarrass one of its officials, Paris and Berlin have hardened their stance at imposing new sanctions.  Russia has responded to the sanction threat by warning the EU that any sanction that hurts the Russian economy will result in a severance of ties.

The rise in tensions between Russia and the EU will likely bode well for the U.S. but could be divisive within the bloc.  The U.S. has long chided EU countries for not doing enough to unwind themselves from Russia following its invasion of Crimea.  A particular bone of contention is the Nord Stream 2 pipeline, which the U.S. believes will expand Russia’s influence in Europe. Although we do not believe that the construction of this pipeline is in jeopardy, we suspect the EU could seek to form closer ties with the U.S.  There are countries within the EU that could hamper EU retaliation efforts.  Italy, which has forged a close relationship with Russia in recent years, will likely push back against anything that might put those ties in jeopardy.  Greece could possibly be another country to express reluctance.

Although the severance of ties would hurt the EU, the chances of it backfiring on Russia are very high.  The EU is the country’s largest importer, so Russia will likely hurt itself with that decision.  Given the economic struggles, which began before the pandemic, we don’t see breaking ties as a tenable solution.  It could possibly try to make up for the loss by forming a closer bond with China, but given the history between the two countries, it wouldn’t be an attractive alternative.  As a result, we wouldn’t be surprised to learn that the threat was likely an effort to further divide the EU.

European news:  A new Italian president, London losing business to rivals, and more.

Policy and Economics:  More action against China and progress with the stimulus package.

 China: China bans the BBC, the U.S. is maintaining contact with Taiwan, and China and India ease tensions.

 COVID-19:  The number of reported cases is 107,648,109 with 2,363,449 fatalities.  In the U.S., there are 27,366,838 confirmed cases with 474,554 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 68,285,575 doses of the vaccine have been distributed with 46,390,270 doses injected.  The number receiving a first dose is 34,723,964, while the number of second doses, which would grant the highest level of immunity, is 11,188,782.  The Axios map shows marked declines in infection rates.


 The Biden administration on Thursday purchased another 200 million doses of the two coronavirus vaccines authorized for emergency use in the United States.

 International news:  More developments in Myanmar and Benjamin Netanyahu appeals to Israeli Arabs and other news.

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