Daily Comment (January 6, 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, where the Democrats have won at least one of the two Senate runoff elections in Georgia and hold a small lead in the other.  The election results explain much of the market dynamics so far this morning, as we discuss below.  We next discuss various developments overseas before ending up with the latest coronavirus news.

U.S. Politics:  In the first of the two Senate runoff elections in Georgia, the AP has now called Democrat Raphael Warnock the winner in his race against Republican incumbent Kelly Loeffler.  With 98% of expected ballots reported, Warnock has garnered 50.6% of the votes, giving him a lead of approximately 53,000 votes.  In the other race, Democrat John Ossoff maintains a narrow lead of 50.2% or about 16,000, but the AP considers that race too close to call.

United States-China:  President Trump yesterday issued an executive order banning U.S. companies and individuals from transactions with several Chinese-owned apps, citing concerns that the apps could help China access private data and build dossiers on Americans.  The ban would normally be expected to exacerbate U.S.-China tensions.  However, since it doesn’t go into effect until mid-February, China’s reaction may be muted in hopes that it will be reversed by the incoming Biden administration.

China-Hong Kong:  Police in Hong Kong arrested dozens of pro-democracy politicians today in a series of dawn raids that swept up many of the opposition’s most prominent figures, some of whom said they were accused of subversion under China’s national security law.  The arrests, which were related to the politicians’ participation in unofficial election primaries held last year by the democratic camp ahead of planned legislative elections, mark a major escalation of China’s attempt to stamp out political opposition in the territory.  Therefore, they could spark immediate new U.S.-China tensions once the Biden administration takes power.

China:  Reports indicate that Jack Ma, the founder of Alibaba (BABA, 240.40) and fintech giant Ant, is being pressured by Chinese regulators to share Ant’s trove of consumer credit data.  One plan being considered would require Ant to feed its data into a nationwide credit-reporting system run by the central bank. Another option would be for Ant to share such information with a credit-rating company that is effectively controlled by the central bank.

  • Either way, the power play illustrates how far President Xi’s government will go to rein in business people seen as putting their own interests ahead of those of the country or of the Communist Party (the regulators are particularly concerned about the increased risk to the financial system from Ant’s microlending).
  • Longer term, the situation also shows just how much interest modern governments have in maintaining access to data, which can be used to monitor and control personal behavior, and in controlling financial flows.  Those interests go far toward explaining why central banks around the world are exploring their own digital currencies.

OPEC+:  Just hours after Saudi Arabia, Russia, and their oil-producing allies agreed to maintain last year’s pandemic-related production cuts at their current levels through February, the Saudi government announced it would unilaterally cut one million barrels a day of crude production starting next month in order to support prices.  Global crude prices surged in response, although it is important to remember that renewed pandemic lockdowns could temporarily drive down oil demand and prices once again.  Besides, it appears that the Saudi cut is to facilitate production increases in Russia and Kazakhstan that will help keep the alliance together, so the net impact of the Saudi reduction may be less than meets the eye.

India:  Vandals have damaged more than 2,000 cellphone towers as part of a protest against the deregulation of India’s agriculture industry.  The towers are owned by Reliance Industries (RELIANCE.BO, 1914.15), a conglomerate that also owns major Indian grocery chains expected to benefit from the reforms.

North Korea:  According to state media, paramount leader Kim Jong Un has opened a rare ruling party congress — only the second since the strongman came to power — with an admission that the economic strategy he unveiled at the previous meeting had not panned out.  He also touted national self-reliance and promised to lay out new policies later in the meeting.

COVID-19:  Official data show confirmed cases have risen to 86,555,947 worldwide, with 1,871,517 deaths.  In the United States, confirmed cases rose to 21,052,711, with 357,390 deaths.  Vaccine doses distributed in the U.S. now total 17,020,575, while the number of people who have received at least their first shot totals 4,836,469.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


 U.S. Policy Response

 Financial Market Impacts

  • As investors look forward to the prospect that widespread vaccine use will start to control the pandemic, they are increasingly turning to foreign equities, especially emerging markets.  That includes Turkey, where the country’s stocks, bonds, and currency have all been helped by improved monetary policy.

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