Daily Comment (June 30, 2020)

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

[Posted: 9:30 AM EDT]

U.S. risk assets are little changed today as encouraging economic data out of China is being largely offset by reports of renewed coronavirus outbreaks and lockdowns in many key U.S. states and some foreign localities.  At the same time, geopolitics are rising to the forefront again, with China passing its new national security law for Hong Kong and Australia boosting its cyber-defenses against Chinese aggression.  We present all the key news below.

COVID-19:  Official data show confirmed cases have risen to 10,417,063 worldwide, with 509,474 deaths and 5,255,829 recoveries.  In the United States, confirmed cases rose to 2,682,897, with 129,544 deaths and 705,203 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • Surging coronavirus cases in California, Arizona, Texas and Florida are reportedly straining hospital systems and maxing out the capacity of their intensive care units.  In Phoenix, where ICU units at several hospitals are already full, some are reportedly refusing to admit patients arriving by ambulance to the emergency room.  When a community’s health system is overwhelmed, it tends to prompt government officials to take action they otherwise wouldn’t take, and it can have a significant negative impact on people’s confidence.  The development could prompt renewed economic restrictions and undermine political support for current incumbents in key localities, so it’s an important risk for the equity markets.
  • Just as Florida and Texas did last week, Arizona has responded to the surge in caseloads and stress on the hospital system by putting its economic reopening into reverse.  Governor Ducey said yesterday that the state would immediately close all bars, gyms and cinemas for at least one month.  Separately, New Jersey halted plans to allow indoor restaurant operations and New York’s governor said he is considering a similar move, while Tennessee’s government said its state of emergency would be extended.  Curiously, even as states continue to stretch their traditional health and welfare responsibilities into stringent economic lockdowns, few of the new announcements touched on the imperfect but much simpler and less costly measure of requiring people to wear facemasks in public.
  • Meanwhile, in Britain, the city of Leicester and surrounding areas have been placed under renewed lockdown in response to a resurgence in COVID-19 cases.  Health Secretary Matt Hancock said non-essential shops had been told to close on Tuesday and schools asked to shut their doors to the majority of their pupils from Thursday.  Classes will remain open for vulnerable children and children of critical workers.
  • In India, the government said schools would stay shut for another month and restrictions would be extended until the end of July on nonessential services and movement of persons in containment zones—coronavirus hot spots where lockdowns are still in effect. A nighttime curfew will also be kept in place across the country.
  • The FDA today will outline its conditions for approving a COVID-19 vaccine, including a requirement that any vaccine be at least 50% more effective than a placebo in preventing the disease.  According to the Wall Street Journal, the agency will also say that a vaccine won’t be approved simply if it leads to antibodies in the bloodstream of patients, on grounds that it is not known what level of antibodies will confer protection.  The guidance will also reportedly say that no vaccine would be approved unless a vaccine company had “clearly demonstrated” proof of a vaccine’s safety and effectiveness through a clinical study.
  • WHO Director General Ghebreyesus warned that the virus pandemic is far from over and the worst could yet come.  He also said the WHO would send a second team to China to investigate the source of the pathogen.

U.S. Policy Response

  • Federal Reserve Chair Powell and Treasury Secretary Mnuchin will testify before the House Financial Services Committee today on the coronavirus crisis and the policies implemented to fight it, as required by economic support legislation passed in March.  According to his prepared remarks, Powell will say that even though the economy appears to have bounced back faster than previously expected, there is still significant uncertainty as to whether the virus will be kept in check and how the economy will grow from here.  If Powell sticks to that theme, it will probably be interpreted as confirmation that monetary policy will remain extraordinarily accommodative, which would be supportive of the markets.

Foreign Policy Response

  • In an effort to build momentum for the European Commission’s proposed €750 billion post-coronavirus recovery fund, which would be financed with common EU debt, German Chancellor Merkel assured the “frugal four” nations opposed to the idea that all EU countries must also be willing to reform their economies and make them more “future-proof.”  Merkel expressed confidence that EU leaders would reach agreement on the fund and on the bloc’s new budget at a summit due to be held in July, although she admitted there is still a “long way to go.”  If Merkel’s gambit helps push the recovery fund forward, it will likely be positive for European assets and negative for the dollar, at least in part because the common EU debt would help create conditions for the euro to eventually become a true reserve currency to rival the greenback.

China-Hong Kong:  In an extraordinary meeting, China’s rubber-stamp legislature gave final approval to a new national security law for Hong Kong and President Xi immediately signed it, though full details are still to be released.  Demonstrating how swiftly the new law is affecting Hong Kong politics, anti-China activist Joshua Wong disbanded his Demosisto opposition party and urged pro-democracy leaders to use “more flexible” methods to resist Chinese influence on Hong Kong.

China-India:  New Delhi announced it would ban dozens of Chinese mobile apps from being downloaded or used in India, citing this month’s China-India border clashes in the Himalayas and the possibility that the apps could be used to monitor and profile Indian citizens.  According to a senior Indian official, “This is India’s first salvo to China after the border clashes, showing that India has a diverse range of retaliatory options.”  The move deprives some of China’s biggest and most important technology firms from accessing India’s large, fast-growing market.  It may therefore encourage similar moves by the U.S. or other countries that are concerned about China’s growing assertiveness.

China-Australia:  The Australian government is recruiting 500 additional cyber spies and making its largest-ever investment in digital security after a breakdown in diplomatic relations with China and mutual allegations of espionage activity.  The investment of almost $1 billion over a decade follows a warning from Prime Minister Morrison that the nation’s government, companies and educational institutions have been under sustained attack from a “sophisticated state actor.”

Russia-Libya:  The Russian government is sending additional fighters, weapons and cash to Libyan opposition leader Khalifa Haftar, who is on the defensive after a failed effort to topple the country’s UN-backed government.  In an effort to maintain influence in the country in case Haftar loses further support, the Russians are reportedly also building relationships with alternative opposition leaders, including Aguila Saleh.

United States:  A nonprofit higher education research organization said overall enrollment at U.S. colleges and universities this spring was down 1.7% from a year earlier, marking the seventh straight year of annual declines.  The drop was most severe for four-year, for-profit institutions and smaller, nonprofit schools.  Many large public and private nonprofit schools saw increased enrollment.

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