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:
- Democrats are making another push to get the social spending and climate bill passed before the midterm elections. The party is considering lowering income caps and means-testing the Child Care tax credit to win Senator Joe Manchin’s (D-WV) elusive vote.
- The U.S. housing market gained almost $10 trillion during the pandemic, according to data gathered by Zillow (ZG, $45.99).
- The China anti-competitiveness bill is meeting partisan opposition in the Senate. The bill dubbed the America Competes Act is designed to help improve supply chains and promote the domestic production of critical goods such as semiconductors. Opposers to the bill have argued that it does not adequately address the threat posed by China and contains provisions that promote wasteful spending. The bill is likely to have some bipartisan support if brought to the Senate floor, but there are concerns it will fall short of the 60 votes needed to overcome a filibuster.
- Nearly 45 million people in the Northeast and Mid-Atlantic are going to be impacted by winter storms over the weekend. The storms have the potential for hurricane-force winds and heavy snow, and they could potentially lead to power outages and a sharp rise in energy prices.
- Chinese regulators plan to ramp up the pace of its antitrust crackdown as it looks to create a level playing field for small and medium-sized companies. These smaller companies make up the majority of the country’s economy and will be vital as the country moves away from relying on residential investment for GDP growth.
- China will jail forty-seven steel company officials for violating the country’s air pollution standards. The officials are accused of using fake data to get around environmental regulations. Over the last decade, China has intensified its crackdown on pollution as it looks to clean up the air.
- Officials from the China National Space Administration announced that China and Russia have agreed to build a research station on the moon. The alliance could set the stage for a new space race.
- 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.
- The U.S. is pushing China to change some of its quarantine and testing requirements for American diplomats. The increase in restrictions has resulted in a request for some officials at the U.S. embassy in Beijing to leave China.
- A sub-variant of Omicron has been detected in Colorado. The new variant can spread faster than the original, but there is no evidence that it leads to more severe outcomes.
- About 1,700 dockworkers at West Coast ports tested positive for COVID-19 in January. The number of infections in January surpasses the total number of cases in all 2021.
- More than 300 scientists and public health officials have urged the U.K. government to waive IP rights on vaccines to aid efforts to combat the pandemic.