Daily Comment (January 15, 2021)

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

[Posted: 9:30 AM EST] | PDF

Good morning.  Equity markets are trending lower following Biden’s announcement of additional stimulus.  Despite markets being relatively bullish on fiscal stimulus, there is growing concern that the $1.9 trillion price tag may make it harder to pass through Congress.  We will explain the package in more detail below.  Chinese equities have trended lower as the Trump administration continues its attack on Chinese firms.  We also have new updates on the pandemic and other important news.  And, being Friday, there is a new Asset Allocation Weekly, along with the accompanying podcast and chart book.

Biden COVID-19 Plan: On Thursday, Joe Biden asked that Congress “act now” on a new rescue package. The proposed plan will request $1.9 trillion and is expected to include $1,400 stimulus checks to households, tax cuts, a temporary boost in unemployment benefits, and a moratorium on evictions and foreclosures through September.  The most controversial part of the plan is a boost to the minimum wage from $7.25 to $15.00 an hour.  The plan will likely be the Biden administration’s first test in getting major legislation through Congress.  Here are the things we are looking out for:

  • Last night, the House voted to send the articles of impeachment to the Senate.  Typically, impeachment trials last a few weeks, but Democrats have argued that this case is so overwhelming that the trial could end sooner.  We are not optimistic that this will happen as Republicans may try to stall the impeachment trial to make it harder for the Biden administration to accomplish many of its goals.
  • Senator Chuck Schumer will have a full plate when he takes over as Senate Majority Leader next week.  He will be tasked with managing the impeachment hearings, confirming members of Biden’s staff, and securing another stimulus package.  To say he has a tall order to fill would be an understatement.  That being said, if he wants the Democrats to hold on to the Senate after 2022, he will probably need to prioritize. It will be interesting to see how he handles the pressure as the fiscal stimulus pushes through the Senate and as angst grows over the impeachment of a person who is no longer president. His biggest hurdles will likely be to get Democrats on the same page while the impeachment process gets underway.  Due to the political nature of impeachments, bipartisan cooperation will be unlikely.  Hence, he will probably need to build some rapport with Senator Joe Manchin (D-WV), who holds a seat in a notoriously conservative state.  As early as last week, Senator Manchin has expressed a reluctance to issue more stimulus checks but has been relatively silent as of late.
  • The increase in the minimum wage is, in some cases, the most controversial part of the plan and will probably be a crucial part of Biden’s economic agenda.  The increase in the minimum wage will likely meet stiff pushback from his Republican colleagues. In the past, the party has resisted a minimum wage hike, as it is has been argued that it is a job killer. Given the near doubling of the minimum wage and the overall health of the labor market, we expect that, if implemented, the minimum wage could be phased in as opposed to an overnight jump to prevent small businesses from being overburdened.

China:  The U.S. imposes new restrictions on Chinese firms, and Beijing ignores it and ramps up the pressure on its foes.

  • The Trump administration has added nine Chinese firms, including Xiaomi (XIACY,19.75), to its list of companies believed to be owned or controlled by the Chinese government. The designation will ban Americans from investing in those companies and make it harder for them to do business in the U.S.
  • The Department of Commerce finalized rules that will make it easier for the federal government to block Americans from importing technology from countries it deems to be a threat to national security. The rule will come into effect in 60 days and will target countries such as Iran, Russia, North Korea, Cuba, Venezuela, and, most notably, China.
    • U.S. automakers have already started complaining about the ban over Chinese technology as firms have already begun shutting assembly lines due to a semiconductor shortage.
  • Chinese steelmakers feeling the pinch caused by the country’s ban on Australian coal have asked the government to lift its ban. Although there is hope that China could allow shipments that arrived before the ban to be offshored, efforts to lift the ban were largely unsuccessful.  The stance likely represents China’s willingness to accept some pain if it can force other countries to bend to its will.

COVID-19:  The number of reported cases is 92,993,666 with 1,991,206 fatalities.  In the U.S., there are 23,282,329 confirmed cases with 388,159 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 30,628,175 doses of the vaccine have been distributed, with 11,148,991 of first doses injected.  The Rt data shows 20 states are showing a reading less than one, with South Dakota having the best results and Washington State with the worst.


  • The WHO team sent to Wuhan to investigate the origins of COVID-19 has already run into roadblocks. Two of the experts were forced to stay in Singapore because they tested positive for COVID-19 antibodies, while the remaining experts were required to quarantine for two weeks.  There is a growing belief that China’s willingness to let independent scientists study the origin of the virus may be more for political purposes than for scientific reasons.  As a result, there is skepticism that WHO officials will be given complete autonomy in their investigation.
  • In the U.S., COVID-19 hospitalizations fell to a 10-day low, and there is growing optimism that the worst is now behind us. For the first time since September of last year, only one state, North Carolina, set a record in COVID-19 hospitalizations.
  • A city in northern China is building a new quarantine facility to deal with a growing number of virus cases ahead of the Lunar New Year, which takes place a month from now.
  • Vaccine news:

Powell Speaks:  Speaking at a virtual conference hosted by Princeton University, Fed Chair Jerome Powell allayed fears that the Fed would end its asset purchase program anytime soon.  He stated that it is way too early to start discussing an exit at present, but the Fed would let it be known when it feels that it has reached its targets in employment and inflation.

European Union and Brexit: Here are the stories.

  • As rules around the banking industry remain unclear, many of the U.K.’s top dealmakers have moved from London to the EU.  The migration could foretell a flight of capital in the future if banking rules don’t become clearer.
  • The European Central Bank is not expected to extend its monetary stimulus beyond March 2022.  Despite renewed lockdown restrictions and a possible double-dip recession for the Eurozone, economists are still confident that the bloc’s economic rebound will likely make future stimulus unnecessary.
  • The Christian Democratic Union party is expected to choose its new leader following Chancellor Angela Merkel’s departure. The top contenders vying to replace Merkel are Friedrich Merz, Armin Laschet, and Norbert Röttgen.

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