Daily Comment (January 8, 2021)

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

[Posted: 9:30 AM EST] | PDF

The Asset Allocation Weekly is available here.

Good morning.  Today U.S. equity futures are elevated as investors anticipate more fiscal stimulus.  A slowdown in job creation and a Democrat majority in both houses likely supports the case for more expansionary fiscal policy.  Chinese shares took a dip as global indices continue to delist Chinese companies. Meanwhile, better than expected economic data has boosted equities in Europe.  Below are the stories that we are following:

COVID-19:  The number of reported cases is 87,588,168 with 1,890,824 fatalities.  In the U.S., there are 21,394,326 confirmed cases with 362,828 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 21,419,800 doses of the vaccine have been distributed with 5,919,418 of first doses injected.  This map from Axios indicates rising severe infections.  The Rt data show that only five states have a reading of less than one, with Oregon having the lowest rate and Georgia with the highest.


  • A coronavirus vaccine developed in China was declared effective by Brazilian officials. The vaccine developed by the Beijing-based Sinovac Biotech Ltd. was determined to be 78% effective against COVID-19. The new vaccine is expected to fill the gap left by the West.
  • Japan declared a state of emergency in Tokyo and three surrounding areas on Thursday. There is growing pressure to expand the emergency to other areas in order to reflect the severity of the spread.  Once praised for its ability to contain the virus, Japan has seen record COVID-19 infections and a rising death toll.
  • A variant of COVID-19 has been confirmed in Texas. The victim was an adult male between the ages of 30 and 40 with no history of travel, suggesting that the variant is already circulating throughout Texas. A strain has also appeared in Pennsylvania.
  • Iran has banned vaccines from the U.S. and Europe as it feels it cannot trust them.

The fallout: In response to riots at the U.S. Capitol that led to four deaths and 52 injuries, there has been a growing push for President Trump to resign or be removed from office.  Although there were rumors that members of the White House cabinet discussed invoking the 25th  Amendment, it doesn’t appear that Vice President Pence will support it.  There has also been a call for an impeachment hearing, but this is also unlikely to happen before Joe Biden’s inauguration date of January 20.[1]  Markets have largely shrugged off the outcry as they have primarily focused on a possible new round of stimulus.

China: Despite developments in its vaccines, the Chinese markets seem to be more focused on China’s growing assertiveness to punish critics as well as the growing number of Chinese firms being excluded from global stock exchanges.

  • Beijing continues to show no sign of letting up in its quest to crack down on Chinese tech billionaire Jack Ma’s business empire.  The Chinese government has told the country’s media to limit the reporting of its anti-trust probe as it fears that it could lose control over the narrative.  Jack Ma has come under increased scrutiny following a speech he gave criticizing the country’s regulators.  So far, it appears that Jack Ma has been laying low to prevent further scrutiny regarding investigations into his businesses.
  • Although Beijing’s crackdown on members of the elite is not new, this one appears to have investors on edge.  Given Jack Ma’s prominence and popularity, the crackdown has raised concerns that the Chinese government could do the same to other businesses throughout the country.  Additionally, fears about Chinese holdings have been elevated given the scrutiny they have already been getting from abroad.  Last month, China was rebuffed by EU negotiators when it tried to add a clause in its EU investment deal that would punish countries restricting the access of Chinese telecom companies.  On Thursday, MSCI announced it will be delisting seven Chinese companies from indices in compliance with the executive order passed by Trump.
  • It appears China doesn’t expect any improvement in U.S.-China relations given Biden’s win.  According to the South China Morning Post, China will likely seek to form relationships with other countries as it expects Biden to continue promoting America First policies.
  • China has continued to diversify its holdings of U.S.-denominated assets as it seeks to become less reliant on the U.S.  Its holdings of U.S. Treasuries fell to the lowest level since January 2017.

U.S.-Europe: Strong economic data may be overshadowing other important stories impacting the U.S. and Europe.

  • A shortage in semiconductors could hinder car production in Europe.  The U.S. automobile manufacturers have been able to scale up production faster from the pandemic than manufacturers of semiconductors, resulting in a supply gap.  If this continues it could possibly slow car production globally.
  • The U.S. has decided to suspend its planned import tariffs on French luxury goods.  The tariffs were in response to France’s digital tax.
  • The breakup of the U.K. and the EU appears to be having an impact on businesses. Grocery store Marks & Spencer (MAKSF, $1.88) has stated the deal has caused problems with its business models.  Although the agreement preserves tariffs and quota free-trade between the U.K. and EU, rules around re-exported goods have complicated the way businesses set up supply chains.

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[1] If Trump is impeached, the Senate could vote to disqualify him from running for office in 2024.