by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EST] | PDF
We have published our latest Weekly Geopolitical Report, which is Part II of our two-part series on the Western Sahara. We also have several other recent multimedia offerings. There is a new chart book recapping the recent changes we made to our Asset Allocation portfolios. Here is the latest Confluence of Ideas podcast. It is Friday, and a new Asset Allocation Weekly, chart book, and podcast are also available. This week’s Weekly Energy Update is available. You can find all this research and more on our website.
Good morning. In a reversal, U.S. equity futures are flat this morning as concerns over the rise in Treasury yields outweighed the optimism garnered following the signing of the American Rescue Plan Act of 2021. We start our discussion with a review of what’s next for the Biden administration and offer a brief summary and commentary about his primetime address. Next, we cover economic and domestic policy news, review international and China-related news, and close with a pandemic update.
Fiscal stimulus: On Thursday, Biden signed his first piece of major legislation since taking office. The $1,400 stimulus checks are expected to be sent to households starting as early as this weekend. The American Rescue Plan was Biden’s first political achievement since taking office, and it will likely be the law he is most remembered for during his presidency. Next, the Biden administration will turn to the infrastructure bill. It is estimated to cost $2 trillion and already has received bipartisan opposition as moderates have stated they would like the bill to be paid partially through either the increase in taxes, budget cuts, or a combination of the two. Right now, Biden’s approval rating is sitting near 60%, but we suspect that will change as Congress turns its attention to the immigration crisis on the southern border and as conservatives and progressives continue to voice frustration over the lack of progress made in increasing the federal minimum wage. At this time, we remain confident that Biden will not have enough political capital to institute any major tax changes. Thus, we are not confident that his infrastructure bill will be successful.
Lockdown anniversary: Thursday marked the one-year anniversary of national lockdowns. In remembrance of the day, President Biden discussed the progress made during the pandemic. In his speech yesterday, he stated he would like all adults to be eligible for vaccines by May 1. If enough people are vaccinated, restrictions could be lifted to allow for small gatherings by the July 4 holiday. However, the president also cautioned that if the country were to relapse, there could be new lockdowns. From our perspective, it appears the Biden administration has taken the position that the worst is behind us, and they may be right. However, if they are wrong, it will likely be very difficult to implement new restrictions in the future. People are clearly showing signs of fatigue. Our primary concern is that as cases begin to fall, which can be partially attributed to warmer weather, people will be more reluctant to receive the vaccine and thus making it harder for the country to achieve herd immunity. In that event, we suspect the virus could continue to be in circulation for a long time, especially in communities where there are many vaccine skeptics. New variants that are resistant to the virus could also emerge. In short, we acknowledge that a lot of progress has been made, but we think it is too soon to spike the football.
Economic and domestic policy:
- The Biden administration has informed some suppliers to China’s Huawei Technologies Co. (002502,CNY, 2.900) of tighter conditions on previously approved export licenses, prohibiting items for use in or with 5G devices, according to people familiar with the move.
- On Thursday, the Biden administration formally rescinded the Trump-era “public charge” rule, which tightened restrictions on poorer immigrants seeking U.S. residency, as a dozen GOP state attorneys general scrambled to preserve it.
- The House on Thursday approved two pieces of legislation aimed at strengthening background checks on firearm sales and transfers, a leading priority for Democratic lawmakers.
- Bipartisan House lawmakers announced a deal on Thursday to extend the Paycheck Protection Program (PPP) for two months. It would ensure funds could still flow to small businesses following the March 31 expiration date on the program.
- Yesterday, a group of bipartisan House lawmakers introduced legislation intended to protect critical infrastructure from cyberattacks after an unsuccessful hack of a Florida water treatment facility.
- The Biden administration is lifting a Trump-era suspension of aid to parts of Yemen under the control of Houthi rebels, according to U.S. officials and people briefed on the matter.
- In a new front in the conflict between Israel and Iran, Israel has targeted at least a dozen vessels bound for Syria, mostly carrying Iranian oil, out of concern that petroleum profits are funding extremism in the Middle East, U.S. and regional officials say.
- Prime Minister Yoshihide Suga and the leaders of the U.S., Australia, and India are expected to meet online Friday for the first “Quad” leaders’ summit. Known officially as the Quadrilateral Security Dialogue, the Quad is an informal strategic forum of the four nations that hold semiregular meetings, joint military drills, and discussions about regional economic and development assistance.
- Malaysia’s government has introduced a law that punishes spreading coronavirus misinformation with jail time and hefty fines. The emergency ordinance goes into effect on Friday and does not need parliamentary approval as the country is currently under a state of emergency to fight the virus.
- Pony Ma’s Tencent Holdings Ltd. (TCEHY, USD, 89.28) has been put on notice. Asia’s largest conglomerate was censured by China’s antitrust watchdog on Friday, as Beijing expands a crackdown that began with Jack Ma’s online empire.
- The European Union is set to target China with sanctions for the first time since the 1989 Tiananmen Square crackdown, blacklisting four people and one entity over human rights abuses in Xinjiang, several diplomats said.
- Alibaba (BABA, USD, 240.80) appears destined for softer treatment. Officials familiar with Beijing’s thinking said regulators don’t want to crush a technology powerhouse popular with both Chinese households and global investors…as long as it disassociates itself from its flashy and outspoken founder and aligns itself more closely with the Communist Party.
- China drew the curtain on decades of adversarial politics in Hong Kong as the national legislature approved electoral changes that would put pro-Beijing loyalists firmly in charge of the city and squeeze opposition groups from elected office.
- Ahead of next week’s top-level meeting in Alaska, Chinese Premier Li Keqiang said Beijing hopes to resume dialogue with Washington, even if the two countries “can’t work everything out any time soon.” But U.S. Secretary of State Antony Blinken has downplayed the prospect of restarting the dialogue between the two without concrete action from Beijing.
COVID-19: Official data show confirmed cases have risen to 118,240,289 worldwide, with 2,623,789 deaths. In the United States, confirmed cases rose to 29,166,566 with 529,469 deaths. Vaccine doses delivered in the U.S. now total 127,869,155, while the number of people who have received at least their first shot totals 62,451,150. Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.
- The Novavax (NVAX, USD, 207.19) vaccine was 100% effective in preventing severe COVID-19 symptoms in a final analysis of its trial that paves the way for the U.K. to authorize emergency use.
- The seven-day average of new cases has been declining for 59 days since the January 11 peak, meaning only the April-to-June drop was longer, at 67 days from its peak to the beginning of the subsequent surge. The July-to-September easing lasted 55 days.
- Denmark suspended the use of the AstraZeneca (AZN, USD, 48.00) vaccine over concerns about possible links to an increased risk of blood clots, the Danish Health Authority announced on Thursday. Iceland and Norway also announced suspensions in administering the shots.
- The European Union authorized use of the Johnson & Johnson (JNJ, USD, 159.94) vaccine on Thursday, amid mounting frustration with a sluggish inoculation campaign that has been hobbled by supply shocks and logistics failures in addition to global battles ratcheting up over scarce doses.
- Hospitals in Brazil’s main cities are reaching capacity, health officials warned, as the country recorded the world’s highest COVID-19 death toll over the past week, triggering tighter restrictions on Thursday in its most populous state.
- Russia is ramping up overseas output of its COVID-19 vaccine, pledging to supply shots to almost one in 10 people on the planet this year even though it has produced only a tiny fraction of that so far.