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

[Posted: 9:30 AM EST] | PDF

Our Comment today opens with political news; today’s Senate runoff elections in Georgia and tomorrow’s Congressional consideration of the presidential vote could produce short-term market concerns.  We next turn to international news, with a focus on China and the global oil market.  We end with an update on the coronavirus pandemic, where worries about surging infections and new mutations helped produce yesterday’s big drubbing in the risk markets.

U.S. Senate Elections:  Georgia’s two Senate runoff elections are being held today, and the races are very close.  Prediction markets now suggest a split decision is likely, potentially reflecting the weekend release of a recorded phone call in which President Trump pressured Georgia Secretary of State Brad Raffensperger to “find” enough new votes to make Trump the state’s winner (listen to the call here).  If the Democrats win both races, they would gain very narrow control of Congress.  In our estimation, Senator Manchin (D-WV) would become the swing vote in the Senate, meaning that extreme policy measures would be unlikely to pass.  All the same, a Democratic sweep could trigger temporary weakness in equities.

• Adding to the potential for politics to generate short-term market volatility, Congress will meet in a joint session to formally count the Electoral College votes for president tomorrow.  Many Republicans planning to mount time-consuming challenges even though they are highly unlikely to be successful.
• Besides the challenges from Republican lawmakers, planned protests in Washington and other cities have the potential to produce unsettling violence.

United States-China:  The New York Stock Exchange last night reversed its decision to delist Chinese telecom giants China Mobile (CHL, 26.86), China Telecom (CHA, 26.04), and China Unicom (CHU, 5.50) under the recent U.S. ban on investing in companies that support the Chinese military.  According to the NYSE, the shares will remain listed while the exchange further researches the impact of the U.S. ban.

• The U.S. Treasury Department’s Office of Foreign Assets Control, which handles economic sanctions, said the ban covers derivatives and depositary receipts, as well as exchange-traded funds, index funds, and mutual funds.
• Last week, the Treasury said it would add subsidiaries to the blacklist if they are majority-owned—or controlled—by a company that has been named.
• Even though the NYSE only committed to putting off delisting “at this time,” shares in the targeted telecom firms today are reversing much of their sharp declines yesterday.

OPEC+:  Saudi Arabia and Russia deadlocked yesterday over whether their oil producers’ alliance should continue boosting crude output amid a resurgent pandemic.  Although Russia and its allies pushed for another production increase of 500,000 barrels per day, equal to the one approved last month, the Saudis urged restraint, and the meeting ended with no deal.

Saudi Arabia-Qatar:  Saudi Arabia reopened its airspace, land borders, and ports to Qatar in an initial step to end a bitter feud that erupted in 2017.  At the time, the Saudis, the United Arab Emirates, Bahrain, and Egypt launched a blockade against Qatar for supporting terrorism and aligning with Iran.  Now, the Saudis have apparently decided it’s better to play nice in the region before the inauguration of Joe Biden as U.S. president.

Mexico:  State-owned oil major Pemex is reportedly struggling to come up with the cash to meet its massive debt payments, surrounded by continued production declines and low global oil prices.

COVID-19:  Official data show confirmed cases have risen to 85,827,486 worldwide, with 1,856,288 deaths.  In the United States, confirmed cases rose to 20,824,710 with 353,632 deaths.  Vaccine doses distributed in the U.S. now total 15,482,500, while the number of people who have received at least their first shot totals 4,563,260.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections were only slightly above 180,000 yesterday, but reported numbers are typically low early in the week.  The seven-day moving average stood at 213,437, while the 14-day moving average was 198,781.  Virus-related hospitalizations jumped to 128,210, with a record 23,435 in intensive care.  The winter resurgence in infections continues to put intense stress on healthcare systems around the country and globally.
• With the new, faster-transmitting mutation of the virus galloping across the U.K., Prime Minister Johnson launched the nation’s third national lockdown.  Under the new measures, schools and nonessential shops are to stay shut until mid-February, and residents are permitted to leave their homes only if necessary.
  • To cushion the economic blow, the government announced it would provide an additional £4 billion of one-off “top-up grants” for an estimated 600,000 retail, hospitality, and leisure companies, which can each claim up to £9,000.
  • There will also be a new £594 million discretionary fund made available for local governments to support other businesses that are not eligible for those grants but are affected by the restrictions.
• Over on the continent, as officials prepare to start implementing the EU’s newly approved, €750 billion pandemic recovery fund, some economists warn that major aid recipients like Italy and Spain will likely struggle to manage and spend the funds effectively.
• In Japan, Prime Minister Suga said he would decide on Thursday whether to implement a new lockdown in the greater Tokyo area as COVID-19 rebounds there.

 Economic Impacts

• As vaccines finally become available, some investors are starting to consider a possible recovery for urban apartment buildings and apartment REITs.

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