Daily Comment (July 29, 2020)

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

[Posted: 9:30 AM EDT] | PDF

Investors today are hoping for more clarity on future monetary policy after the Federal Reserve finishes its latest policy meeting.  Also in Washington, top tech firm executives are being grilled remotely by a House antitrust committee regarding the market dominance of their online platforms.  Finally, we note signs that both the EU and Japan may be swinging toward the U.S. administration’s “Tough on China” policy, which could have a significant impact on global stock markets in the coming years.  After reviewing the latest coronavirus news, we examine these developments and others below.

COVID-19:  Official data show confirmed cases have risen to 16,762,605 worldwide, with 661,012 deaths and 9,771,236 recoveries.  In the United States, confirmed cases rose to 4,352,304, with 149,260 deaths and 1,355,363 recoveries.  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

European Union-China:  The EU announced it will impose sanctions on China over the new security law it has imposed on Hong Kong.  The sanctions include limiting exports of equipment that China could use for repression and reassessing extradition arrangements with Beijing.  The move is notable because EU governments have sometimes been reluctant to put their Chinese export markets at risk.  If EU governments are now becoming more convinced of China’s geopolitical, military, and economic threats, they may eventually adopt a “Tough on China” policy like the one developing in the U.S.  If such a conflict arises between the broader West and China, new anti-China capital regulations and other measures could be especially negative for Chinese assets.

Japan-China:  Adding to the evidence that the developed democracies could be coalescing around a “Tough on China” policy, China hawks in Japan also appear to be gaining influence and are pushing Prime Minister Abe to take a harder line on Beijing.

China-Hong Kong:  Prominent pro-democracy campaigner Benny Tai was fired from his job as an associate law professor at the University of Hong Kong based on his participation in a 2014 protest.  The move illustrates how academic freedoms in the city are becoming constricted as China asserts its authority.  Separately, Hong Kong officials drew a rebuke from the U.S., the U.K., and Australia after they said they may postpone their September legislative elections for up to one year due to the city’s recent rebound in coronavirus cases.

United States:  The chief executives of several major U.S. technology firms including Amazon.com (AMZN, 3,000.33), Apple (AAPL, 373.01), Facebook (FB, 230.12), and Google (GOOG, 1,500.34) are being hauled before the House Antitrust Subcommittee today to be grilled on the market dominance of their online platforms.  With politicians across the political spectrum signaling their displeasure with the companies, for various reasons, there is a risk that tough questioning of the CEOs could spook investors in the tech sector.

United States:  Presumptive Democratic nominee for president Joe Biden issued a plan to tackle racial inequality that would include pushing the Federal Reserve to monitor and target gaps in employment, wage rates, and wealth.  The proposal would “require the Fed to regularly report on current data and trends in racial economic gaps—and what actions the Fed is taking through its monetary and regulatory policies to close these gaps.”  However, the plan stops short of calling for the Fed to directly target the unemployment rates of Black and Hispanic communities, instead of the U.S. average, as has been backed by some economists (including Jared Bernstein, one of Biden’s economic advisers while he served as vice president).

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