Daily Comment (January 20, 2021)

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

[Posted: 9:30 AM EST] | PDF

Our Comment today opens with U.S. political news related to Joe Biden’s inauguration as president today.  We next turn to overseas news, focusing mostly on Chinese and Japanese developments.  As always, we end with a discussion of the latest on the coronavirus pandemic.

U.S. Politics:  As Joe Biden prepares to be inaugurated today, Republican Senate leader Mitch McConnell and Democratic Senate leader Chuck Schumer are negotiating a power-sharing deal regarding how to operate the evenly-divided Senate.  The main stumbling block appears to be the filibuster, which some Democrats want to eliminate, but McConnell has vowed to preserve it.

  • In his Senate confirmation hearing, Secretary of State nominee Tony Blinken found common ground with many key Republicans by striking a hard line on China.  In his testimony, Blinken said he supports Tuesday’s finding by Mike Pompeo, the current Secretary of State, that China has committed genocide in Xinjiang with its policies toward the Uighur ethnic group.  He also backed military and global diplomatic support for Taiwan as it faces pressure from Beijing.
  • In addition, Blinken questioned the future of Hong Kong as a center for global businesses, and he echoed President Trump and others in criticizing China for misleading the world about the origin of the coronavirus pandemic and contributing to its spread.

China-Australia:  Not only has China’s retaliatory ban against Australian coal upended global trade flows of the commodity, as we’ve reported previously, but it now appears that coal shippers are being forced to wait out the dispute.  The flotilla of coal carriers sitting outside Chinese ports has grown to some 65 vessels, and one vessel has been waiting outside port since May of last year.

China:  Technology entrepreneur Jack Ma resurfaced in a public video for the first time since late autumn, after angering Chinese officials by pushing back against financial regulations and was punished by having his IPO of fintech firm Ant Financial scuttled.  Ma’s reappearance has been positive for Chinese tech stocks so far today, as it provides reassurance that his firms won’t be nationalized, and that there may be a limit to how strongly the government wants to punish him for his pushback against their policies.

Japan:  New rules at the Tokyo Stock Exchange and more aggressive guidelines by proxy advisors are threatening to force a massive unwinding of companies’ cross-shareholding networks by a deadline of March 31.  Although businesses will probably try to water down the rules before then, the approaching deadline could produce volatility in Japanese equities over the coming two months.

  • Cross-shareholdings are interconnected portfolios of ownership, where listed Japanese companies own shares in each other, which protect underperforming managements with a cushion of automatic investor support.
  • Although cross-holdings have been in decline since a peak in the 1990s, companies justify them as necessary to “maintain business relationships.” This infuriates fund managers who view such webs as a recipe for complacency, low returns on equity, and poor governance.

European Union:  EU Competition Chief Margrethe Vestager warned large technology firms that it would be better to work with the EU on developing new digital market rules since failure to do so would lead to a complex patchwork of different rules in each country.

Italy:  Prime Minister Conte narrowly won his vote of confidence in the country’s Senate yesterday.  However, the vote still left Conte’s government severely weakened after the party of the former prime minister pulled out of the ruling coalition last week.

Russia:  The Kremlin reiterated its commitment to extending the New START nuclear arms-control treaty with the U.S., saying it would welcome efforts promised by the administration of U.S. President-Elect Biden to reach an agreement on the last remaining major nuclear arms pact between the two countries.

COVID-19:  Official data show confirmed cases have risen to 96,284,292 worldwide, with 2,060,232 deaths.  In the United States, confirmed cases rose to 24,256,319, with 401,797 deaths.  Vaccine doses distributed in the U.S. now total 31,161,075, while the number of people who have received at least their first shot totals 13,595,803.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • Newly confirmed U.S infections totaled about 168,000 yesterday, although that was still significantly lower than one week ago.  Just as important, the number of hospitalizations related to the virus edged down to 123,820, including 23,029 in intensive care.  On a less positive note, the number of daily deaths rose back above 2,500.
  • In China, health authorities have ramped up their efforts to contain a resurgence of cases.  As the country faces its worst flare-up since the pandemic first exploded there early last year, cities across the northern provinces of Hebei, Heilongjiang, and Jilin have built temporary quarantine facilities, imposed lockdown measures on millions of residents, and rolled out rounds of citywide testing.
  • In the U.K., the government remains on track to meet its goal of vaccinating 15 million of its most vulnerable citizens by mid-February.  The apparent success of the program to date is due in part to its reliance on the homegrown vaccine from Oxford University and AstraZeneca (AZN, 52.57), which is easier to store and handle than some rival vaccines.
  • A study by German researchers found that the vaccine developed by Pfizer (PFE, 36.73) and BioNTech (BNTX, 104.70) is equally effective against all known mutations, including the rapidly transmitting mutation in the U.K.  Since the news could help ease concerns about vaccine effectiveness, it should be positive for risk assets.
  • As major developed countries prioritize acquiring vaccine doses for their own people and contribute little to the WHO program for poorer countries, China is ramping up its vaccine diplomacy.  Foreign Minister Wang Yi pledged last week to hand out more than a million doses of Chinese vaccines during a swing through Southeast Asia.

 Economic and Political Impacts

  • According to Boston College’s Center for Retirement Research, the economic and financial impacts of the pandemic only had a modest negative impact on American’s retirement security.  Even though many workers lost jobs or income last year, the difference was made up partially by the strong stock prices.  As a result, the Center estimates that 51% of workers aged 30 to 59 are in danger of not being able to maintain their standard of living in retirement, up just a bit from 49% in the previous year.

 U.S. Policy Response

  • In her confirmation hearing before the Senate Finance Committee yesterday, Treasury Secretary-Nominee Janet Yellen argued forcefully for President-Elect Biden’s proposed $1.9 trillion pandemic relief proposal, as anticipated.  That aspect of her testimony was probably behind much of the rise in equities yesterday.  However, it’s notable that she also signaled the Biden Administration will continue to take a tough line on China’s aggressive trade policies.  In a sign that U.S.-China economic tensions could well continue, she promised to use the “full array” of U.S. policy tools to address China’s unfair trade practices and low labor and environmental standards.
  • According to the Small Business Administration, roughly 60,000 borrowers were approved for more than $5 billion in forgivable loans during the first week of the reopened Paycheck Protection Program, which was relaunched on January 11.

 Foreign Policy Response

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