Daily Comment (January 12, 2021)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EST] | PDF

Our Comment today opens with a discussion of the latest U.S. political news, but since the markets have largely looked past the recent turmoil, we don’t go into great detail on the issue.  We quickly move on to the latest signs of regulatory risk for the technology sector, further signs of geopolitical tensions between China and the West, and the latest on the coronavirus pandemic.  The Asset Allocation Weekly is available.

U.S. Politics:  In an internal memo, the FBI warned that agitators for President Trump are planning armed protests at all 50 state capitols and in Washington, D.C., ahead of President-elect Biden’s inauguration on January 20.  Citing the continuing danger from violent groups, the National Park Service said it has closed facilities, parking areas, and roadways in Washington and is restricting access to the Washington Monument.  Meanwhile, the National Guard’s top officer said he would increase the number of his troops in Washington to at least 10,000 by Saturday in order to counter any violent protests such as those carried out by Trump supporters last Wednesday.

  • Separately, Democrats in the House will vote on impeaching Trump for a second time, on charges of “incitement of insurrection,” on Wednesday.
  • Even though investors looked past the violence at the capitol last week, it’s important to remember that additional violent protests could still unsettle the markets over the coming week.

U.S. Technology Sector:  Toronto-based Rumble, Inc., which has become popular among conservatives, has filed an antitrust suit in the U.S. federal court in California arguing that Google is “unfairly rigging its search algorithms” to place YouTube above Rumble in its search results.  Not only does the suit highlight the growing regulatory risk faced by high-flying technology firms, but it also illustrates how that risk is exacerbated by conservatives’ anger over what they see as the technology sector’s biases in favor of liberals.

Australia-China:  The Australian government has banned the China State Construction Engineering Company from acquiring Australian building contractor Probuild.  The decision marks the government’s first use of new powers gained on January 1 to block foreign investment based on national security concerns.  It will likely exacerbate the current Australia-China tensions, which have already prompted China to restrict imports from Australia.

India:  Citing procedural irregularities, the Supreme Court suspended three agricultural reform laws that have prompted mass farmer protests and road blockages around New Delhi for the last several weeks.  However, the decision didn’t fully nullify the laws, so it is not necessarily a win for the protestors, and Prime Minister Modi could still end up putting his market-friendly reforms in place.

United States-Iran:  In a speech today, outgoing Secretary of State Mike Pompeo will accuse Iran of having secret ties to al-Qaeda.  Since Iran and al-Qaeda stand at opposite ends of Islam’s Sunni-Shia divide, many people assume they hate each other.  Pompeo will rely on newly declassified intelligence to argue that they are closer than previously assumed.  The speech may be designed to undercut President-Elect Biden’s expected effort to restart the Iranian nuclear deal.

COVID-19:  Official data show confirmed cases have risen to 90,995,185 worldwide, with 1,947,758 deaths.  In the United States, confirmed cases rose to 22,619,353, with 376,283 deaths.  Vaccine doses distributed in the U.S. now total 25,480,725, while the number of people who have received at least their first shot totals 8,987,322.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


 Economic Impacts

  • According to data provider Refinitiv, municipal bond issuance of $252 billion in 2020 was the highest in a decade, reflecting the collapse of interest rates and increased costs faced by state and local governments because of the pandemic.
  • Oil prices hold firm, in a recovery powered by prospects for rebounding travel and economic activity following mass vaccinations.  In addition, output cuts by large suppliers from Saudi Arabia to U.S. companies are turbocharging the advance, giving traders confidence that demand will exceed supply.

 U.S. Policy Response

  • Even though the runup in bond yields has many observers focused on possible yield curve control by the Federal Reserve, FRB Atlanta President Bostic warned that if the economy snaps back quickly this year, he might support paring back its bond-buying stimulus efforts later in the year.  The statement could support further yield hikes.

 Foreign Policy Responses

  • According to the UN Economic Commission for Latin America and the Caribbean, Mexico will have the smallest budget deficit among all major Latin American countries this year due to President Andrés Manuel López Obrador’s reluctance to approve significant pandemic relief measures.
    • Despite being a populist, the president is fiercely opposed to taking on additional debt.
    • His stimulus plan is equivalent to just 1.1% of GDP, less than a quarter of the average in Latin America.

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