Daily Comment (June 2, 2021)

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

[Posted: 9:30 AM EDT] | PDF

Good morning, all! U.S. equities appear to be headed for a sideways open this morning as investors remain cautious following recent market events in oil and cybersecurity. Today’s report begins with a summary of the cyberattack on the largest meat producer in the world. International news follows, with the OPEC decision on oil production and a new Israeli government.  Economics and policy news are up next, including possible friction at the Federal Reserve and the U.S. withdrawal from Afghanistan. China news follows, and we close with our pandemic coverage.

Another cyberattack: A cyberattack on JBS (JBSAY, $12.14), the largest meat producer in the world, forced the company to shut down all of its U.S. beef plants on Tuesday. The attacks started on Sunday and led the company to suspend its North American and Australian computer systems. Although the company announced that most of its plants would be operational by Wednesday, the attack highlights vulnerabilities in the critical infrastructure of the U.S. food supply chain as well as the growing capabilities of hackers.

Cyberattacks have picked up dramatically during the pandemic. There have been 40 publicly reported ransomware attacks against food companies since March 2020. This recent attack comes only weeks after Colonial Pipeline was forced to shut down some of its operations following a hack on its computer system. The rise in these attacks coincides with the increased adoption of cryptocurrency and a decreased level of skills required to carry out these cyberattacks. Although Russian criminal groups have received most of the blame, these types of attacks will likely continue from criminals worldwide as long as computer systems are not updated and cryptocurrencies remain unregulated. In the meantime, the Department of Homeland Security has issued a directive that requires notification from pipeline operators when they are victims of a cyberattack. We suspect other critical industries will also follow this directive going forward. As the pandemic fades out of public focus, we expect cryptocurrencies will receive more scrutiny as it is becoming apparent that the semi-anonymous payment system poses severe national security risks.

International news: OPEC will slowly increase its production, Russia is looking to add more military units, and Benjamin Netanyahu is possibly out as Prime Minister.

Economics and policy: STL Fed President James Bullard and Federal Reserve Governor Lael Brainard offered opposing views on the labor market, the Afghanistan withdrawal continues to progress ahead of schedule, and the U.S. Chamber of Commerce wants to increase the number of work visas.

China:  Malaysia seeks answers from China, and rising costs and power shortages are hurting manufacturing production.

COVID-19:  The number of reported cases is 171,021,130 with 3,556,992 fatalities.  In the U.S., there are 33,286,129 confirmed cases with 595,205 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 366,317,045 doses of the vaccine have been distributed with 296,404,240 doses injected.  The number receiving at least one dose is 168,489,729, while the number of second doses, which would grant the highest level of immunity, is 135,867,425.  The FT has a page on global vaccine distribution.

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