Daily Comment (July 7, 2021)

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

[Posted: 9:30 AM EDT] | PDF

We begin today’s Comment with U.S. politics and some new developments regarding U.S. relations with China and Russia.  We then touch on the imminent release of a new strategy paper from the European Central Bank before addressing a few other international developments.  We end with the latest news related to the coronavirus pandemic.

U.S. Politics:  The Associated Press has called New York City’s Democratic mayoral primary, declaring former police captain Eric Adams, currently the borough president for Brooklyn, the winner.  The win would put Adams on track to become only the second Black mayor in the history of the nation’s largest city.  Against a backdrop of rising crime rates around the country, the election of the law-and-order Adams could potentially help insulate Democrats from accusations of being soft on crime.

United States-China:  Responding to China’s crackdown on ride-hailing company Didi Chuxing (DIDI, $12.49) just days after its initial U.S. listing, Senator Marco Rubio (R, Florida) has lambasted the firm as an “unaccountable Chinese company” due to China’s refusal to subject its U.S.-listed companies to U.S. accounting standards.  The statement highlights the risk that the Didi fiasco could stoke efforts in Congress to clamp down on Chinese companies listing on U.S. exchanges.  As we have continually warned, such efforts show how the worsening U.S.-China rivalry and decoupling could pose risks for U.S. investors.

  • Last year, after a groundswell of support from lawmakers, former President Trump signed legislation imposing tougher accounting standards on Chinese entities that sell shares in the U.S.  The law in effect bars companies from listing in the U.S. if they fail to submit to audits from the Washington-based Public Company Accounting Oversight Board for three consecutive years.  China critics in Washington believe the legislation should also serve as the starting point for a broader decoupling of capital markets between the countries.
  • The attack on Chinese companies is not limited to those listed on U.S. exchanges and not following U.S. auditing standards.  There is also increased scrutiny of U.S.-listed Chinese companies with ties to the People’s Liberation Army.  Finally, reports say the federal government’s Committee on Foreign Investment in the U.S., or Cfius, is taking a closer look at Chinese firms trying to invest in the U.S. and is seeking to coordinate its actions with U.S. allies.

United States-Russia:  With smaller companies around the world reacting to another major ransomware attack seemingly perpetrated by a Russian criminal gang, the White House has announced that U.S. officials will meet next week with their Russian counterparts to discuss cybersecurity.  We have seen no details on the meeting, but it could be designed to emphasize President Biden’s warning to President Putin at their summit last month, in which Biden said the U.S. reserves “the right to take action, on our own” if the Russian government cannot or will not hold cybercriminals accountable.

European Union:  The 25 members of the ECB’s governing council are meeting today to finalize the agreement on an updated strategy after a 19-month review.  Although the strategy review was scheduled to last into September, the recent agreement on key points has prompted ECB Chief Lagarde to push for a deal that could be published as early as Thursday.

  • The most fundamental change expected is regarding the way the ECB defines its core mandate of “price stability.”  After years of failing to lift inflation up to their objective, the policymakers are expected to ditch their target of “close to, but below, 2%” on the grounds that it is too opaque and implies a cap on price growth.
  • There is widespread support on the council for a more straightforward 2% target, which the policymakers would likely describe as symmetric.  In other words, the ECB would be as concerned about exceeding it as being below it. The target would be a medium-term objective with the flexibility to fluctuate in either direction in the short term.

France:  Seeking to burnish his reformist credentials ahead of his reelection campaign next year, President Macron is considering reviving a controversial overhaul of France’s costly pension system that was abandoned last year because of the pandemic.  Yesterday, he met with labor union and business leaders to discuss options, including a suggestion by Finance Minister Le Maire to raise the retirement age from the current 62.

Haiti:  President Jovenel Moïse, who had been ruling by decree for over a year and refused to step down after the apparent end of his term in February, was reportedly assassinated by a group of gunmen at his residence overnight.  In addition, the swearing-in of a new prime minister scheduled for today has not happened, which could point to the involvement of the current prime minister, Claude Joseph.  In any case, Haiti’s long history of political turmoil looks poised to continue.

COVID-19:  Official data show confirmed cases have risen to 184,720,810 worldwide, with 3,995,703 deaths.  In the United States, confirmed cases rose to 33,748,698 with 605,932 deaths.  Vaccine doses delivered in the U.S. now total 383,068,840, while the number of people who have received at least their first shot totals 182,714,064.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • According to the latest CDC data, 55.0% of the U.S. population has now received at least one dose of a vaccine, and 47.5% of the population is fully vaccinated.
  • As the highly transmissible and more dangerous Delta variant of the virus drives infections higher again, especially in areas with low vaccination rates, President Biden announced a series of measures designed to encourage more people to get a shot.  The new measures include setting up vaccination clinics in workplaces, establishing more mobile vaccination clinics, and improving access for adolescents aged 12 to 18.  The administration will also supply more doses to doctors’ offices and send advocates to visit people on their doorstep to provide information about the vaccines.
  • In Spain, the rapid spread of the Delta mutation, especially among younger, unvaccinated people, has quickly pushed the country’s new infection rate to the highest in Europe.  In fact, the seven-day rate of new infections almost tripled from 58 cases per 100,000 on June 29 to 156 on Tuesday.
  • In Japan, politicians continue to spar over whether or not to allow spectators at the Summer Olympic Games in Tokyo starting on July 23.  Meanwhile, the government plans to declare a fresh state of emergency for Tokyo through August 22, and it will extend the emergency for Okinawa Prefecture and the quasi-emergencies for Osaka, Saitama, Chiba, and Kanagawa to the same date.  Many observers believe the moves will force the government and organizers’ hands to ban spectators from the Olympics.
  • Canadian researchers say they have pinpointed a handful of amino acids targeted by key antibodies in the blood of some people who received the vaccine developed by AstraZeneca (AZN, $59.90), offering fresh clues to what causes rare blood clots associated with the shot.

 Economic and Financial Market Impacts

  • As a gradual relaxation of pandemic restriction boosts activity, the European Commission has hiked its forecast of EU economic growth this year to the fastest pace in decades.  The forecasts now call for EU gross domestic product (GDP) to grow 4.8% in 2021 and 4.5% in 2022.  After the 6.0% decline in 2020, that would suggest the EU’s economy will totally recover and begin a new expansion by the end of next year.
    • One major beneficiary of the budding recovery is European bank stocks.
    • So far this year, the Euro Stoxx Banks index is up 26%, compared with a 14% rise for the broader benchmark, and it has recently regained all the ground it lost during the pandemic.
  • Despite the building recovery in Europe, the OECD issued a new report today showing that some 22 million fewer people are working in the world’s advanced economies now than there were right before the pandemic hit.  Moreover, the report forecasts that employment in advanced economies won’t fully recover until the end of 2022.
    • One reason the labor market recovery will be slow is that the low-skilled workers who most likely lost their jobs at the start of the pandemic are ill-equipped to move into the sectors where hiring is strongest.
    • Meanwhile, businesses are likely to bring back employees who are still being supported through short-time work schemes before they create new jobs at scale, risking the emergence of a gulf between those who have continued to work and those who have lost jobs and income.

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