Daily Comment (January 22, 2021)

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

[Posted: 9:30 AM EST] | PDF

Good morning.  Global equities are lower as fears of a third wave of the coronavirus continue to mount.  New developments related to the pandemic lead our coverage today, followed by a discussion of President Biden’s first day in office.  The report will conclude with a roundup of economic and international news.  A new Asset Allocation Weekly is available, along with the associated podcast and chart book.  The Weekly Energy Update won’t be published until Monday as the DOE has decided to publish the weekly data today.

New COVID Variants: As cases begin to rise globally due to various mutations of COVID-19, there are growing concerns that the virus could be with us longer than anticipated.  So far, countries that had success in containing the virus last year are seeing a spike in cases.  Both China and Japan have re-imposed new travel restrictions in response to the virus as cases have risen in both Beijing and Tokyo.  Meanwhile, there have been several studies suggesting that vaccines may be less effective in protecting against the South African variant of the virus.

COVID-19:  The number of reported cases is 97,425,832 with 2,087,820 fatalities.  In the U.S., there are 24,610,051 confirmed cases with 409,641 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 37,960,000 doses of the vaccine have been distributed, with 15,053,257 doses injected.  The number of second doses, which would grant the highest level of immunity, is 2,394,961.  The next challenge will be when the U.K./South African variant becomes more common in the U.S.  Both variants spread faster and could lead to another surge in the coming weeks.


 Biden Administration: In his first full day in office, President Biden signed executive orders invoking the Defense Production Act that will allow for the promotion of vaccine production and improved testing, especially for travelers.  In addition, this administration appears to be posturing to take a tougher stance against Russia, while also maintaining some of the China policies of the previous administration.  Lastly, there appear to be more details about the impending impeachment trial of former President Trump.  Below are our thoughts about these stories:

  • The new executive orders have been aimed at providing some relief while the administration works to push through its ambitious stimulus plan.  As we mentioned in yesterday’s report, executive orders have been used as a de facto way to get things done in Washington as partisanship has made cooperation politically toxic.  However, Biden has emphasized that he would look to achieve some bipartisan support to get his bill passed.  On Thursday, a bipartisan group of 16 senators that included Mitt Romney (R-Utah), Susan Collins (R-Maine), and Joe Manchin (D-West Virginia) met with Biden aide Brian Deese to discuss details of the plan.  So far, none have come out for or against the proposal, although Romney suggested he isn’t sure if he is interested in another round of stimulus.
  • Outside of executive orders, the president has made some changes to foreign policy.  The president has pushed for a five-year extension of the Nuclear Arms Treaty with Russia, while also stating that he will seek to hold the country accountable for its perceived aggressions against the U.S. and its dissidents.  At issue is the SolarWinds cyber-attack that took place last year as well as the attempted murder of Putin rival Alexei Navalny. The president has stated that he has sought a report of Russian misdeeds and will come to a decision on a response after receiving the findings of this report.
  • The president’s proposed $1.9 trillion stimulus package is looking to make its way through Congress, which will likely be the first test of his political capital.  House Speaker Nancy Pelosi has agreed to take up the measure in February, vowing a speedy passage, while Senate Republicans have raised concerns over the swelling of the federal deficit at Janet Yellen’s confirmation hearing on Tuesday.  Although we are doubtful of a quick passage of the bill through Congress, as it would need 60 votes to avoid a filibuster, we are optimistic that the more palatable parts of the bill have a great chance of making its way through Congress.  The $15/hour minimum wage will likely not be part of the final bill.  That being said, the president is expected to sign an executive order that would boost the minimum wage for federal workers.
  • One of the biggest obstacles of a speedy passage of the bill is the upcoming impeachment trial for former President Donald Trump.  On Thursday, Senator Mitch McConnell stated that he would like a hearing to begin in February in order to give Mr. Trump’s defense team time to mount a defense.  He just recently found an attorney to represent him during the hearings on Thursday.  So far, Nancy Pelosi has not formally sent the articles of impeachment to the Senate, but she is expected to do so any day now.  An impeachment hearing could potentially distract senators from being able to push Biden’s stimulus through Congress, although the Democrats have argued that a trial should be straightforward and quick.  A conviction could prevent President Trump from running again in 2024, but in order for that to happen he would need 17 Republicans to find him guilty.  The possibility of a conviction seems slim as Trump is still popular within his party.  So far, prediction markets have the count between 53-56 votes against the president, although there isn’t much confidence of this outcome.

International news:

  • Google threatened to make its search engine unavailable in Australia if the government moves ahead with plans to make tech giants pay for news content.
  • Israeli airstrikes targeted a site near the city of Hama in northwestern Syria.  The airstrikes are believed to be aimed at areas connected to Iran’s missile production.
  • Twin suicide bombings ripped through a crowded marketplace in Baghdad, killing at least 32 people and wounding at least 75 others.  Islamic State has taken responsibility for the attack, making this attack its first in two years.
  • Critics of Thailand’s royal family are now facing criminal charges as more people begin testing the political taboo of questioning the family’s importance in Thai society.

 Economic News:

  • On Thursday, Janet Yellen provided a written response to members of the Senate Finance Committee.  In it, she expressed an openness to work with Congress to protect households earning “less than $400,000” from losing their tax cuts, suggested the wealthy will be audited at higher rates, and mentioned that she will not seek to reopen the Fed lending phased out by her predecessor but will continue to act within the mandate.  In addition, she stated that Biden will not actively seek a weaker currency and is expected to return to the Rubin compromise, where the U.S. says it supports a “strong dollar” but merely means it won’t use the exchange rate as a policy tool.
  • Each of the 12 Federal Reserve bank presidents were renewed to a five-year term on Thursday.

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