Daily Comment (January 4, 2022)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

We open today’s Comment with a couple of U.S.-related developments, including news that a Russian recently extradited from Switzerland on insider-trading charges may actually have information on the Russian government’s interference in the 2016 U.S. presidential election.  We next review a range of other global and international developments, and we close with the latest news on the coronavirus pandemic.

U.S. Telecom System:  AT&T (T, USD, 25.43) and Verizon (VZ, USD, 52.44) have agreed to postpone the rollout of their new 5G service until January 19   The nation’s airlines will address potential interference issues with cockpit communications systems.  The decision came after initially refusing a request by the Transportation Department and FAA over the weekend.

  • The reversal came as the FAA was preparing to issue flight restrictions that the airlines worried would significantly disrupt air travel and cargo shipments around the country.  In response, the airline industry association was reportedly preparing to file a lawsuit demanding postponement of the rollout.
  • The quick turn of events may reflect intense pressure on the telecommunications firms to avoid worsening the supply shortages and operational disruptions that contribute to today’s high inflation.

United States-Russia:  Court filings indicate that Vladislav Klyushin, the Russian technology tycoon extradited to the U.S. from Switzerland on insider trading charges in mid-December, is close to high-level Russian officials and may have inside knowledge of their efforts to interfere in the U.S. presidential election in 2016.

  • According to people in Moscow who are close to the Kremlin and security services, Russian intelligence has concluded that Klyushin has access to documents relating to a Russian campaign to hack Democratic Party servers during the 2016 U.S. election.
  • These documents, they say, show the hacking was led by a team in Russia’s GRU military intelligence that U.S. cybersecurity companies have dubbed “Fancy Bear” or APT28.
  • Such a cache would provide the U.S. for the first time with detailed documentary evidence of the alleged Russian efforts to influence the election, according to these people.
  • If Klyushin cooperates and provides more information on the Russians’ election interference or broader cyberattacks, U.S.-Russian relations are likely to worsen even further.

Cryptocurrencies:  New reporting says about 10% of the notoriously conservative customers at German savings banks have held cryptocurrency assets.  The data comes as multiple mainstream banks outside the U.S. are starting to experiment with offering cryptocurrency wallets and other services to their clients.

Indonesia:  The energy ministry has proposed banning Indonesian coal exports for the month of January in the face of looming shortages for the nation’s electricity generating plants.

  • Officials will meet tomorrow to refine their plans, but coal prices in China have already jumped, threatening a new energy crisis like the one in October that shut down factories and caused electricity prices to soar.  A ban would also likely drive coal and electricity prices up in India, another major importer of Indonesian coal.
  • On the other hand, the proposed ban benefits major coal producers in Australia, who have seen higher prices.

Sudan:  Prime Minister Abdalla Hamdok has resigned, leaving the military-led government with no civilian members.  The move will put more pressure on the generals to move toward elections, as they have promised since taking over in an April 2019 coup, but protests and demonstrations are likely to increase in the meantime.

COVID-19:  Official data show confirmed cases have risen to 292,169,523 worldwide, with 5,446,606 deaths.  In the U.S., confirmed cases increased to 56,155,350, with 827,341 deaths.  For an interactive chart that allows you to compare cases and deaths among countries, scaled by population, click here.  Meanwhile, in data on the U.S. vaccination program, the number of people who have received at least their first shot totals 243,527,564.  The data show that 73.3% of the U.S. population has now received at least one dose of a vaccine, and 62.0% of the population is fully vaccinated.

Virology

  • Driven by the highly transmissible Omicron mutation and catch-up reporting after the holidays, new U.S. infections rose to a pandemic record of 1.08 million yesterday.  The seven-day average of new cases rose to 480,375, also a pandemic record.  The surge prompted several Wall Street banks, which have been among the biggest champions of returning to the office, to backtrack on those plans and encourage those who could work from home to do so.  Hospitalizations for confirmed or suspected COVID-19 reached a seven-day average of 97,855, up 41% in the past two weeks.  However, that was still comfortably below the pandemic peak of 137,510 last January 10.
  • Starbucks (SBUX, USD, 116.68) yesterday said that workers in its U.S. cafes, offices, and manufacturing plants must be vaccinated by February 9 or get tested weekly. Workers who choose to test must have a pharmacist or doctor administer it rather than taking one at home; workers themselves will need to obtain and cover any costs for the tests.
  • In a sign that Omicron could prompt wider cancellations of entertainment events, organizers of the Grammy Awards are considering postponing this year’s event, as they did last year.  The event is currently scheduled for January 31 in Los Angeles.
  • In Japan, Okinawa Prefecture today reported 225 new cases, marking the highest figure since mid-September last year.  In response, the prefectural government is now considering asking the central government to issue a quasi-state of emergency.

 Economic and Financial Market Impacts

  • Senior living facilities may have been some of the hardest-hit casualties of the pandemic, with many pushed into bankruptcy and approximately 8% of the sector’s municipal bonds now in default.  Nonetheless, investors are piling into those obligations in search of yield.

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