Daily Comment (July 7, 2020)

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

[Posted: 9:30 AM EDT]

Risk assets are under pressure this morning in part because of multiple reports pointing to the reimposition of coronavirus lockdowns in some locales and the risk of halting, prolonged economic recovery.  On top of that, geopolitical tensions between the Western democracies and China and Russia remain high.  We outline all the key news below.

COVID-19:  Official data show confirmed cases have risen to 11,648,268 worldwide, with 538,828 deaths and 6,328,930 recoveries.  In the United States, confirmed cases rose to 2,938,750, with 130,310 deaths and 924,128 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


Economic Impact

Foreign Policy Response

China-India-Bhutan:  Chinese and Indian troops started to withdraw from disputed areas along the two countries’ Himalayan border, following talks between senior diplomats and military commanders to calm tensions.  The moves should help end the fistfights between the two sides, which caused at least 20 deaths among Indian troops last month.  However, Indian media reports say China has now begun designating part of the border with Bhutan as disputed.  The new pressure may be a way to keep pressure on New Delhi, which is a key Bhutanese ally.  In any case, Chinese territorial aggressiveness appears alive and well, which will keep up geopolitical tensions in the region.

China-Germany:  Chancellor Merkel is facing criticism in Germany for failing to take a tough line on China over the new national security law it has imposed on Hong Kong, with politicians from both opposition and government parties accusing her of being too soft on Beijing.

China-United States:  The U.S. Chamber of Commerce, the Business Roundtable and other business groups issued a public letter urging the U.S. and China to fully implement their January “Phase I” trade deal.  The letter reflects growing concern that Chinese purchases of U.S. goods are running far short of the pace required under the deal.  China has made decent progress with its ramp-up of U.S. agricultural goods, but that probably just reflects President Xi’s belief that President Trump would be so satisfied with increased farm exports that he would overlook China’s failure to implement other parts of the deal.  That could be a miscalculation, as China’s failure to meet its obligations could generate enough anger among U.S. conservatives that Trump would walk away from the deal.  A formal breakdown of the deal would signal even worse U.S.-China tensions and more trade conflict, which would likely be very negative for global risk assets.

United Kingdom-Russia:  Britain has imposed sanctions on more than two dozen Russian individuals in connection with the 2009 death of lawyer Sergei Magnitsky, signaling it may become more active in imposing U.S.-style economic sanctions against authoritarian regimes for their destabilizing acts.  The Kremlin said it would hit the U.K. with “reciprocal measures” in response.

Russia:  An adviser to the chief of Russia’s Roskosmos state space agency, Ivan Safronov Jr., has been detained on a charge of high treason for passing classified military information to an unspecified NATO country.

France:  As part of his cabinet reshuffle, President Macron has promoted a young lieutenant, Gérald Darmanin, to replace Interior Minister Christopher Castaner, who was criticized for his handling of the anti-government gilets jaunes protests last year.  More recently, the police also lost faith in Castaner for not doing enough to protect them from criticism by Black Lives Matters protesters.  In other aspects of the reshuffle, Finance Minister Le Maire kept his job, as did the foreign, defense and health ministers.  However, with the post-coronavirus economic recovery central to Macron’s re-election hopes, the president named new labor and environment chiefs.

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