Daily Comment (June 22, 2021)

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with the latest developments regarding U.S. monetary and fiscal policy.  We follow that with news on the growing push for tighter antitrust regulation–including in college sports!  We then cover various international developments before wrapping up with the latest on the coronavirus pandemic.

U.S. Monetary Policy:  In testimony before Congress yesterday, Federal Reserve Chair Powell said job creation should improve, and inflation should moderate in the coming months, vehemently reiterating his message after the Fed’s policy meeting last week.  Separately, New York FRB Chief Williams agreed conditions were improving but backed Powell in asserting that they still are not at the point where policy should be tightened.  In contrast, Dallas FRB Chief Kaplan and St. Louis FRB Chief Bullard emphasized that the time is drawing nigh when the policymakers must consider tightening policy.

  • Overall, the flurry of statements reflects our view that Powell has lost full control of the Fed’s policymaking committee.  Pro-capital, establishment-oriented hawks like Bullard and Kaplan are striking out on their own to argue for a quicker response to inflation pressures.
  • This has already prompted the financial markets to react, as shown by the tightening yield curve and the accompanying tightening of market monetary conditions.
  • We expect it will be some time before the Fed ratchets back its asset purchases or formally hikes interest rates.  Indeed, there is even some political pressure building to support that idea.  Ahead of Powell’s testimony yesterday, Carolyn Maloney (D-NY), a senior member of the House Financial Services Committee, warned the Fed not to put the brakes on the economy too soon.  Nevertheless, the continued debate will probably serve to keep financial conditions somewhat tighter than they would be otherwise.

U.S. Fiscal Policy:  White House officials will head to Capitol Hill today for a briefing on the status and details of the $1.2 trillion bipartisan infrastructure proposal being developed by the “Group of 20” senators.  The briefing marks a fresh push by President Biden to find a compromise with Republican lawmakers.

  • Sen. Rob Portman (R-OH) indicated last evening that he and the “Group of 20” would try to advance the talks before the Senate leaves at the end of the week for July 4 recess.
  • If today’s meeting goes well, Biden is reportedly inclined to meet with the senators to try to advance the talks. Yesterday, he separately hosted Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) to discuss the matter.

U.S. College Sports:  The Supreme Court yesterday unanimously invalidated the NCAA’s restrictions on granting college athletes education-related compensation.  The ruling essentially said that the restrictions amount to price-setting for student-athletes and violates federal antitrust laws.  Under the ruling, universities and colleges can now compete for student-athletes by offering education-related inducements such as scholarships for graduate or vocational school, payments for academic tutoring, or paid post-eligibility internships.  Although the ruling actually only dealt with a narrow slice of the NCAA’s restrictions, we believe it reflects the growing shift toward tighter antitrust regulation around the world.

EU Antitrust Regulation:  The EU today said it is launching a formal antitrust probe against Google (GOOG, $2,529.10).  The investigation is to determine whether Google has broken EU rules by giving an advantage to its own online display ad technology services to the detriment of rivals.  The probe, which has been going on informally since at least 2019, will examine whether Google is “distorting competition by restricting access by third parties to user data for advertising purposes on websites and apps, while reserving such data for its own use.”  This probe further highlights the growing regulatory risk facing large, dominant technology firms.

Germany:  Chancellor Angela Merkel’s ruling center-right CDU/CSU party grouping, which currently has a commanding lead in the opinion polls ahead of the September federal elections, released a platform pledging tax relief and a quick return to balanced budgets after the massive spending splurge during the COVID-19 crisis.

  • Armin Laschet, the group’s candidate for chancellor, has vowed to continue Merkel’s conservative policies if he is elected.
  • The platform foresees a 25% cap on corporate taxes, down from around 30% now, and it pledges to abolish the “solidarity surcharge” introduced in 1991 to help pay for German reunification.  The platform also promises income tax relief for people on low and middle incomes while saying the group wants a return to balanced budgets “as soon as possible” and to bring Germany into compliance with the Maastricht treaty by bringing its debt-to-gross domestic product ratio below 60%.

Germany-Russia:  German authorities said they arrested a Russian citizen accused of passing sensitive information from a German university to Moscow in return for cash.  The suspect worked as a research assistant for a scientific and technical professorship at an unidentified German university and was arrested on June 18.  The report illustrates how Russian intelligence agencies continue to pursue their traditional craft in areas such as human intelligence and industrial espionage, even as they have become more noted for their cyberwarfare.

Japan-South Korea:  The two governments are in talks for South Korean President Moon Jae-in to attend the opening ceremony of the Tokyo Summer Olympics next month.  Moon reportedly wants to make the trip to reciprocate for former Japanese Prime Minister Shinzo Abe’s trip to South Korea in 2018 for the PyeongChang Winter Olympics.  Such a visit would also hold out hope for some further easing of tensions between the two countries over World War II issues, and it would potentially allow the leaders to coordinate their response to China’s geopolitical and economic aggressiveness in the region.  All the same, Tokyo is reluctant to hold a formal summit between Prime Minister Yoshihide Suga and Moon if the president makes a visit.

COVID-19:  Official data show confirmed cases have risen to 178,840,744 worldwide, with 3,874,630 deaths.  In the United States, confirmed cases rose to 33,555,046 with 602,107 deaths.  Vaccine doses delivered in the U.S. now total 379,003,410, while the number of people who have received at least their first shot totals 177,342,954.  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, 53.4% of the U.S. population has now received at least one dose of a vaccine, and 45.2% of the population is fully vaccinated.
  • The latest data show that South America has now become the region worst hit by the pandemic.
    • With just 5% of the world’s population, the region now accounts for a fourth of the global death toll.
    • Last weekend, Brazil’s death toll surpassed 500,000, with the virus killing seven times as many people per capita each day than in hard-hit India.
  • The highly contagious, deadlier Delta variant, which delayed the U.K.’s economic reopening, has become dominant in Portugal and appeared in clusters across Germany, France, and Spain.  The spread of Delta has raised concerns that it could halt the progress the EU has made over the past two months in bringing new infections and deaths down to their lowest level since at least the autumn.
  • In China, the government is reportedly planning to keep its pandemic border restrictions in place for at least another year as officials fret over the emergence of new variants and a calendar of sensitive events, including the Winter Olympics in February.  In addition, the Communist Party Congress will take place toward the end of 2022, where President Xi is widely expected to seek an additional term beyond the customary two-term limit.

 Economic and Financial Market Impacts

  • Rebounding service businesses in the U.S. boosted wage rates and benefits in order to attract workers, but many manufacturers are now finding that their pay rates aren’t as competitive as they used to be.  That’s likely to put upward pressure on factory wages, on top of the significant cost increases for materials and transportation that manufacturers are already facing. Not only will that keep inflation fears live, but it has the potential to be a hit to corporate earnings if and when firms find they can no longer pass the cost hikes on to their customers.
  • Despite the spread of the Delta variant in Europe, a range of unofficial, high-frequency data suggests consumers on the continent are flocking back to bars and restaurants, booking holidays, and traveling to work again.  The data suggest pre-pandemic patterns of economic activity are re-emerging, which should boost economic activity and European risk assets going forward.
    • Nevertheless, labor and material shortages similar to those in the U.S. are already keeping the European recovery from strengthening as much as it could.
    • Some workers are reluctant to sign up for jobs in Greece, for example, for fear of being stuck there in the event of a new pandemic lockdown.
  • In China, the Yantian terminal in Shenzhen that closed for almost a week in late May after port workers tested positive for COVID-19 is still struggling to get back to normal.  Productivity at the port has reportedly recovered to only about 70% of normal levels, putting further strain on the global supply chain and snarling Chinese trade with the rest of the world.

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