Daily Comment (January 20, 2022)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EST] | PDF

Good morning! Treasury yields have moderated, and equity futures are higher. Today’s report begins with a few items from President Biden’s speech yesterday. Next, we discuss U.S. economic and policy news followed by China-related stories. International news follows, and we end with our pandemic coverage.

The President Speaks: On Wednesday, President Biden marked his first year in office with an address and a news conference. During this speech, the President briefly discussed his accomplishments and shortcomings in his first year in office. He touted his success in getting the economy to reopen and lowering unemployment and also stated he could have done more to speed up the availability of rapid testing. In addition, the President discussed his expectations for his second year in office. He mentioned that the Build Back Better Act would likely need to be scaled back, the Fed will need to fight inflation, and his administration will continue fighting for voting rights.

When the topic of Ukraine was brought up, the President stated the U.S. expects a “minor incursion” by Russia that would fall short of a full-scale invasion. This remark led to speculation that the U.S. was prepared to offer lighter sanctions depending on the scale of the invasion.  The White House would later clarify that the U.S. and its allies are prepared to respond swiftly if Russian military forces cross the Ukraine border. It still leaves unanswered what a “minor incursion” means and whether other acts of aggression such as cyberattacks and paramilitary tactics will lead to a strong response from the West.

Unity among the U.S., Europe, and other NATO allies was questioned. On Wednesday, French President Emmanuel Macron has called on the European Union to secure its own security pact with Russia rather than rely on NATO. The tiff has added to Ukraine’s concerns as it fears that the West may be unwilling to provide the security it needs to feel protected from Russian aggression. Ukraine President Volodymyr Zelensky has told U.S. lawmakers that threatening sanctions after Russia invades his country is not helpful. Nonetheless, the fragmented relationship between the U.S. and Europe likely suggests Ukraine will probably be a dividing issue amongst Western countries and could be valuable in Russia’s attempt to break up the relationship between the U.S. and Europe. If we are right, this could be somewhat bearish on commodities, as Russia will likely not risk a major conflict that could disrupt the flow of commodities. However, it could also encourage Russia to further weaponize its natural gas in an attempt to pressure Europe to get the Nord Stream 2 Pipeline finished.

Economics and policy: 

  • Democrats appear to be preparing a slimmed-down version of President Biden’s Build Back Better plan. The decision to reduce the size of the bill comes after West Virginia Senator Joe Manchin stated he could not support the current bill. At this point, the party needs to secure a victory going into midterm elections. The new bill is expected to pare back much of the social spending and keep most of the climate change provisions.
  • The Senate Judiciary Committee will consider a tech-focused antitrust bill on Thursday. The American Innovation and Choice Online Act will look to reign in big tech companies’ ability to favor their own services in an anti-competitive way. Although the bill appears to have bipartisan support, the White House has stopped short of endorsing it. The bill, if passed, will likely be detrimental to tech equities.
  • The United States government has pledged its support for Bosnia as the country suffers its worst economic crisis since its 1992-1995 war.


  • A United States Navy guided-missile destroyer traveled through the South China Sea on Thursday in a direct challenge to China’s claim of sovereignty. The Chinese military accused the ship of entering its waters illegally and warned of serious consequences if these actions continue. Although China has established military infrastructures throughout the islands within the sea, the area has also been claimed by Taiwan and Vietnam.
  • China disclosed it has begun importing oil from Iran. The disclosure comes as the West revives talks of a nuclear accord with Tehran. The decision by China to resume purchases will likely give Iran added leverage in negotiations.

International news:  

  • President of the European Central Bank Christine Lagarde stated she does not plan to follow the Federal Reserve’s lead in tightening monetary policy. She justified her position by stating that in Europe, the recovery is slower, and inflation is lower. There is no reason for the ECB to act as rapidly as the Fed plans to.  Moreover, she stated she expects inflation to stabilize gradually in 2022, but the central bank is ready to act if the data “demands it.”
  • Turkish President Recep Tayyip Erdoğan and Salvadoran President Nayib Bukele will meet on Thursday. The two are expected to discuss cryptocurrencies. El Salvador is planning to launch a bitcoin-backed bond, in which the country will use the sale of $1 billion in U.S. dollar-denominated bonds to buy bitcoin, and fund construction projects related to bitcoin. In Turkey, a currency crisis due to rampant inflation has led to capital flight from the country into cryptocurrencies. Although Turkey banned the use of crypto as a form of payment last year, it appears Erdogan may be interested in using the digital asset to help mitigate his country’s currency crisis.
  • U.K. Prime Minister Boris Johnson’s woes continue after a senior Conservative MP accused his team of threatening to blackmail backbenchers who are attempting to oust him from office.
  • Russia and Iran are looking to form stronger ties to counter the U.S.’s ability to punish them with sanctions.
  • Silvio Berlusconi, former Prime Minister of Italy, appears to be preparing for a political comeback as the country’s president.
  • The Prime Minister of Finland, Sanna Marin, stated her country does not plan to join NATO in the near future. The country shares a border with Russia, and its membership in NATO would likely spark a response from Moscow.

COVID-19:  The number of reported cases is 338,164,251, with 5,567,277fatalities.  In the U.S., there are 68,569,958 confirmed cases with 857,778 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 654,197,025 doses of the vaccine have been distributed, with 530,430,844 doses injected.  The number receiving at least one dose is 249,702,939, the number of second doses is 209,509,297, and the number of the third dose, the highest level of immunity, is 81,691,581. The FT has a page on global vaccine distribution.

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