Daily Comment (January 28, 2022)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EST] | PDF

Good morning! Today’s report begins with an update on the Ukraine situation, where tensions may be easing.  We then look at U.S. economic and policy news and China-related stories. International news is next, and we conclude with our pandemic coverage.

After weeks of rising tensions between NATO and Moscow, the two sides appear to be ready to move toward de-escalation. Ukraine and Russian officials are now in talks about implementing the Minsk-2 accords again. The original agreement between Kyiv and Moscow gave Russia more of a say in Ukraine’s future; however, the deal had remained dormant. The two sides have agreed to continue the discussion in two weeks, which, if fruitful, could relieve fears of war and give Putin a way to save face. Despite being somewhat dismissive of the NATO letter on Thursday, Foreign Minister Sergei Lavrov said Moscow sees “rational elements on secondary issues” in U.S. responses to its demands.

To prepare for a worst-case scenario, President Biden reassured Ukrainian President Volodymyr Zelensky that the U.S. and its allies are willing to respond decisively if Russia invades. The U.S., EU, and the U.K. are preparing to impose sanctions on new Russian gas projects if Moscow decides to send troops into Ukraine. Given its heavy reliance on Russian gas, the EU was initially reluctant to make such a threat without assurances from the U.S. that it would help find alternative ways for Europe to meet its energy needs. Recently, the U.S. has been in talks with Qatar and other major energy producers to reroute gas to Europe in case it is cut off from Russian gas. Although no formal deal has been announced, it appears the talks have been positive enough that Europe feels confident the U.S. can follow through with this commitment.

From our perspective, we believe Putin may have realized that he overplayed his hand and may be looking for a pathway out. We suspect he viewed the growing unrest and division in the U.S. and Europe over COVID-19 as an opportunity to push its own interests. However, it appears his over-assertiveness may have driven the two sides closer together. Although we believe there remains an elevated likelihood of conflict, recent developments suggest the situation is improving.

Economics and policy:


 International news: 

  • Argentina and the IMF reached an agreement on Friday regarding when the country will balance its primary budget. The deal states that the government will be required to balance this budget by 2025. The new arrangement allows the two sides to continue discussions about renegotiating Argentina’s $40 billion of debt. Additionally, Argentina plans to make a $700 million payment on Friday and another $365 million payment on Tuesday. The pact between the Argentine government and the IMF has sparked outrage throughout the country. Protesters have filled the streets of Buenos Aires over concerns that a deal with the IMF could lead to more austerity. The opposition party has refused to attend IMF talks as it suspects that the issue could help them in next year’s general election.
  • The ECB is projected to be more than a year and a half away from raising rates, according to respondents to a Bloomberg survey. Those surveyed stated they believe that the central bank could end its bond-buying program in March 2023 and could start raising rates the following September. The respondents also said inflation in the euro area, which is 5%, will probably fall throughout the year, easing the pressure on officials to act.

COVID-19:  The number of reported cases is 366,589,668, with 5,638,962 fatalities.  In the U.S., there are 73,428,433 confirmed cases with 878,467 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 663,451,855 doses of the vaccine have been distributed, with 536,370,947 doses injected.  The number receiving at least one dose is 249,267,851, the number of second doses is 211,162,083, and the number of the third dose, the highest level of immunity, is 86,484,618. The FT has a page on global vaccine distribution.

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