by Patrick Fearon-Hernandez, CFA, and Thomas Wash
[Posted: 9:30 AM EST] | PDF
Good morning! Today’s report begins with U.S. economic and policy news followed by China-related stories. International news is next, and we end with our pandemic coverage.
Economics and policy:
- The Federal Reserve released its meeting minutes on Wednesday. Overall, the report confirmed the Fed’s expected shift to more hawkish monetary policy. The minutes showed that the central bank expects to wind down its balance sheet expansion faster than projected, which would pave the way for a quicker than anticipated rate hike this year. Additionally, the minutes suggested the Fed is open to reducing its balance sheet after the first rate hike.
Financial markets, particularly tech stocks, did not respond well to the minutes. There was a selloff in equities and bonds following the report. At this time, we remain optimistic that the Fed will not follow through on its three planned rate increases for the year, but we acknowledge that the current mix of voting Fed members does make these events more likely. President Biden could reduce the likelihood of further rate hikes by filling the three vacant seats on the Fed board. However, he has been reluctant to nominate officials for these positions due to concerns that his picks may not get confirmed in the evenly split and heavily partisan Senate. On Wednesday, it was reported that Biden is looking at former Federal Reserve Governor Sarah Bloom Raskin for vice chair for supervision. Raskin is a popular choice among progressives due to her views on climate change, and her previous confirmation increases the likelihood that she will be confirmed again if nominated.
- The Consumer Financial Protection Bureau is focusing its attention on the buy now, pay later industry. The federal agency is concerned that the industry could be encouraging consumers to overspend while skirting around credit and lending regulations. Although there are no restrictions being proposed, there does seem to be a growing push among Democrats for transparency and possibly new rules regarding how these companies operate.
- Taiwan has pledged to establish a $200 million fund in Lithuania to invest in areas such as semiconductors, lasers, biotechnologies, and research. The venture comes after Lithuania drew the ire of China by allowing Taiwan to open a representative office under its own name. The U.S. has vowed to support Lithuania as it deals with economic fallout associated with retaliation from Beijing following this decision. Now that the office opened, Lithuania faces unofficial trade hurdles and a downgrade of diplomatic relations with China.
- The Kazakhstan government resigned on Wednesday as the protest over rising fuel prices has stirred civil unrest across the country. After protests turned violent, Kazakhstan President Kassym-Jomart Tokayev pleaded for support from a Russian-led military alliance. Following his plea, the President’s house was set ablaze, and several protesters were killed after they attempted to storm the administrative building in the country’s largest city of Almaty. The mounting unrest in Kazakhstan highlights the growing risk of instability in response to rising fuel prices.
- An expected colder-than-normal winter in South and Southeast Asia countries has forced governments to start actively securing natural gas. Indonesia, a major exporter, has encouraged its domestic gas producers to prioritize local customers, while countries such as Thailand and Bangladesh have purchased cargoes of liquefied natural gas on-the-spot market. The surge in demand will likely further cause natural gas prices to rise globally.
- Oil prices continue to climb as it is unclear whether OPEC+ countries will be able to ramp up oil production to meet growing demand. Despite OPEC members and Russia agreeing to boost production in February, there are concerns that countries within the group will not be able to increase their output. In Libya, attacks by militias have cut the country’s daily production from 1.06 million barrels per day to 700 million barrels. Meanwhile, Nigeria has struggled to ship out crude oil from its Forcados and Bonny terminals.
- S. and German diplomats gave a joint statement warning Russia of massive economic consequences if it were to invade Ukraine. Russian and U.S. officials are expected to meet Monday in Geneva for high-level security talks. Although Germany and the U.S. appeared to be a united front, there are members within the EU that feel European countries have been sidelined in discussions regarding Ukraine. Josep Borrell, head of the EU’s foreign and security arm, warned the U.S. and Russia from agreeing to a Yalta-type agreement. Borrell was alluding to the post-war agreement in which the U.S., Russia, and the U.K. came together to discuss how to divide Europe following the end of WWII. Europe fears the U.S. and Russia could come to an agreement that would create boundaries where the two sides will not meddle in each other’s affairs. This could include where the U.S. stations its military.
- The head of Israeli military intelligence has expressed support for the Iran nuclear deal.
COVID-19: The number of reported cases is 297,997,595 with 5,467,568 fatalities. In the U.S., there are 57,762,144 confirmed cases with 832,148 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 618,076,045 doses of the vaccine have been distributed with 513,839,973 doses injected. The number receiving at least one dose is 245,278,020, the number of second doses is 206,797,799, and the number of the third dose, the highest level of immunity, is 72,262,703. The FT has a page on global vaccine distribution.
- Chicago schools were forced to close as teachers did not feel comfortable with the city’s protocols regarding COVID.
- There have been protests throughout Germany in response to COVID restrictions.