Daily Comment (January 27, 2021)

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

[Posted: 9:30 AM EST] | PDF

Our Comment today opens with a short discussion of what to expect from today’s monetary policy decision from the Federal Reserve.  In short, we expect no substantive change in policy.  We then discuss a range of news stories from abroad, including signs of increased domestic tension within Russia and international tension between the EU and the U.K.  As always, we wrap up with a discussion of the latest coronavirus news.

United States:  Officials at the Fed are completing their latest policymaking meeting today, but no substantive changes are expected in either its benchmark interest rate or its asset purchasing programs.  That’s especially true given that the recent upswing in longer-term yields has come to a halt amid strong demand for Treasury obligations.  That will likely forestall any immediate need for the Fed to impose “yield curve control” over longer-term yields.  The key focus for investors regarding the meeting today will likely be how the officials assess economic conditions and prospects going forward.

United States-Russia:  The White House said President Biden held his first call as president with Russian President Putin and raised concerns about issues including the detaining of opposition leader Alexei Navalny, Russian threats to Ukrainian sovereignty, the massive SolarWinds computer hack, and reports of Russia offering bounties on U.S. troops.  A readout on the call from the Russian government stated it was “open and businesslike,” suggesting some tough positioning on both sides.

Russia:  In a sign that President Putin has become concerned about the large pro-Navalny demonstrations across Russia last weekend and the Navalny organization’s video exposé of a massive palace built for Putin using public funds, the president admitted at an event yesterday that he had seen part of the exposé and insisted it was false.  At the same time, Russian state television ran several lengthy attacks accusing Navalny of being a corrupt, failed politician working on behalf of western intelligence agencies.  The attacks underscore a sense of irritation and worry in the Kremlin at Navalny’s ability to harness national public anger while representing the latest in a series of missteps by Putin’s administration in its attempts to sideline the activist.

EU-U.K.:  Just when we all thought the whole Brexit saga was over, the U.K. has sparked a row by refusing to grant full diplomatic status to the EU ambassador overseeing the post-Brexit trade deal signed late last year.  British Foreign Secretary Raab insists that the EU official should be regarded as representing merely an “international organization,” but the EU is insisting that the official be recognized as representing a sovereign state, as it is by all other countries with which it has diplomatic ties.

China:  Jack Ma’s fintech giant Ant Group, which Beijing has clamped down on because of Ma’s pushback against government regulation, has reportedly caved to government pressure to become a holding company regulated by the Chinese central bank.  Besides signaling the government’s intention to maintain control over the private sector, the move will force Ant to meet higher capital standards than would otherwise be the case.  Since the news will reinforce perceptions of increasing state interference in the Chinese private sector, going forward, it will probably be a negative for Chinese equities.

China-Hong Kong:  As more financial services firms leave Hong Kong in response to China’s clampdown on it and implementation of its new security law, officials are worried about the city’s future as a financial hub and are putting executives through what appear to be “exit interviews.”  Hedge fund managers who have been subjected to the process say they were asked for a full picture of the decision-making process behind the moves and the significance of the timing.  The grilling highlights the risk that China’s greater control over Hong Kong will probably drive a lot of its financial services industry to other Asian locales, like Tokyo or Singapore, potentially creating investment opportunities there.

COVID-19:  Official data show confirmed cases have risen to 100,381,254 worldwide, with 2,160,783 deaths.  In the United States, confirmed cases rose to 25,445,699, with 425,257 deaths.  Vaccine doses distributed in the U.S. now total 44,394,075, while the number of people who have received at least their first shot totals 19,902,237.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


 Economic and Political Impacts

  • In India, the recent loosening of pandemic restrictions is not yet prompting any rebound in consumer spending, as consumers continue to hold on to their savings out of fear for the future.  The development highlights how the pandemic could leave more lasting economic scars on less developed countries that couldn’t afford massive fiscal and monetary support measures like those in the U.S.

 U.S. Policy Response

Foreign Policy Response

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