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

[Posted: 9:30 AM EDT] | PDF

Happy St. Patrick’s Day!

Turning to today’s Comment, we open with a preview of the Federal Reserve’s latest policymaking conclave.  The meeting decision will be released early this afternoon, followed by a press conference.  We also review a range of other international and U.S. news before turning to the latest coronavirus developments.

U.S. Monetary Policy:  The Fed will end its latest policy meeting with a statement and press conference by Chair Powell this afternoon.  No significant change in policy is expected, especially since policymakers over the last couple of weeks have insisted that the U.S. economic outlook is still very uncertain, and both unemployment and inflation remain far from their goals.  All the same, investors will be looking for any hint of an earlier-than-expected monetary tightening in the policymakers’ updated economic forecasts and interest-rate projections.

• The housing boom touched off by the coronavirus pandemic continues to drive up demand, and prices, for a range of building materials such as lumber, copper, granite, and concrete.  The rising prices are likely to feed into investor concerns about accelerating inflation and could help keep the bond market volatile in the near term.
• Meanwhile, the February freeze that triggered mass blackouts in Texas led to chemical plant shutdowns that are disrupting global supply chains and causing a shortage of the raw materials needed for everything from medical face shields to smartphones.  Those supply disruptions could also feed into inflation fears and weigh on the bond market.

United States-China:  Wrapping up a meeting with Japanese leaders, Secretary of State Blinken issued a surprisingly pointed attack on Chinese geopolitical aggression and human rights abuses.  According to Blinken, “China uses coercion and aggression to systematically erode autonomy in Hong Kong, undercut democracy in Taiwan, abuse human rights in Xinjiang and Tibet, and assert maritime claims in the South China Sea that violate international law . . .. We will push back if necessary, on China’s coercions or aggressions.”

• It was also telling that the discussion about China reportedly dominated the key 90-minute meeting between Blinken, Secretary of Defense Austin, and Japanese Foreign Minister Motegi.
• Separately, Blinken also said the administration identified 24 Chinese officials whose actions had “reduced Hong Kong’s high degree of autonomy” after China passed a restrictive new election law for the city last week.  The move subjected the officials to sanctions under the Hong Kong Autonomy Act introduced by the Trump administration.  Blinken warned that any financial institution doing significant business with the officials would also be subject to sanctions.
• In sum, the Biden administration continues to sound and act tougher on China than had been expected.  That will probably keep U.S.-China tensions high and present an ongoing risk that investors could be caught in the crossfire.

United States-United Kingdom-Northern Ireland:  Just as President Biden prepared to hold St. Patrick’s Day talks with Irish premier Micheál Martin today, Congress passed a resolution warning that it would oppose any U.K.-U.S. trade deal unless Britain upheld the terms of the 1998 Good Friday peace agreement on Northern Ireland.

• The warning relates to British Prime Minister Johnson’s post-Brexit tussles with the EU over trade flowing through Northern Ireland.
• Even though the U.K. has made modest progress in establishing new, post-Brexit trade agreements with countries outside the EU, a trade deal with the U.S. is critical to Johnson’s vision of transforming the U.K. into a new, hyper-competitive trading country.

United Kingdom:  Prime Minister Johnson’s government issued an updated, post-Brexit national security plan under which the newly unfettered U.K. will attempt to buttress its security by tightening its ties to fast-growing Asian economies like China.  It will also reorient its military forces toward a stronger nuclear deterrence.  For example, rather than cutting its nuclear stockpile to 180 warheads or fewer in the coming years, the ceiling will be raised to 260 warheads.

Russia-Ukraine:  The Ukrainian government’s State Security Service (SBU) said it prevented a large-scale cyberattack by Russian hackers targeting classified government data.  The agency didn’t say whether any damage had been caused in the latest incident, but it blamed a hacker group it identified as Armageddon, which is controlled by Russia’s intelligence services.

COVID-19:  Official data show confirmed cases have risen to 120,819,288 worldwide, with 2,672,857 deaths.  In the United States, confirmed cases rose to 29,549,701with 536,922 deaths.  Vaccine doses delivered in the U.S. now total 142,918,525, while the number of people who have received at least their first shot totals 72,135,616.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections fell to 52,329 yesterday, compared with the seven-day moving average of 55,333 and the 14-day moving average of 56,438.  New deaths related to the virus came in at 1,245, down a full 35% from two weeks earlier and far below the levels seen earlier in the year.
• In California, Los Angeles County was downgraded to the second-highest lockdown tier, which will now allow limited-capacity indoor dining at restaurants, gym reopenings, and other loosening measures.  Other counties also became eligible for the less-restrictive red tier, including San Diego, Riverside, Ventura, and Santa Barbara.  Given the size of California’s economy and population, the reopening measures could have a noticeable and positive impact on national economic data in the months ahead.
• In Florida, new data show the state was able to begin in-person learning at its schools without turning them into superspreaders.  The data will likely play into the debate regarding whether school districts around the U.S. should reopen their classrooms.  In addition, new research suggests schools can get by with a social distancing rule of three rather than six feet.  That would also help increase the number of students that schools could welcome back.
• Dr. Anthony Fauci, the administration’s chief medical officer for the pandemic, predicted that widespread vaccinations and continued social distancing could bring the country closer to a state of normalcy by late summer.  However, he also stressed that relaxing restrictions too soon could still spark a resurgence in the pandemic as is happening in Europe.
• On Fox News last night, former President Trump urged his supporters to get vaccinated.  According to Trump, “I would recommend it, and I would recommend it to a lot of people that don’t want to get it, and a lot of those people voted for me, frankly, . . . It’s a great vaccine. It’s a safe vaccine, and it’s something that works.”  Trump’s support could potentially lead to higher vaccination rates for those who have been hesitant regarding the vaccines, including many Republicans and Trump supporters.
• Echoing the statements by the World Health Organization on Monday, the European Medicines Agency yesterday issued a statement pushing back against some EU governments who have halted the use of the vaccine from AstraZeneca (AZN, 50.05) on concerns about blood clotting.  According to the EMA, the benefits of using the vaccine and preventing many deaths far exceed any likely risks.  The EMA is scheduled to issue a more detailed report on the blood clotting cases on Thursday.
• Pushed by tourism-reliant countries devastated by the pandemic, the European Commission plans to propose creating a COVID-19 certificate that would make it easier for EU citizens to travel inside the bloc.  The certificate would be granted to citizens who have proof of vaccination, a negative COVID-19 test, or proof of recovery from the virus for those who had contracted it previously.  With the certificate, EU citizens could travel to other member states and not be required to quarantine on arrival.
• Iceland will open its borders to all vaccinated foreigners beginning tomorrow, making the North Atlantic island one of the first countries in the world to reopen to tourists after the coronavirus.
  • Iceland’s government had already allowed vaccinated travelers from the EU to enter without quarantine.
  • The new decision means visitors from its main tourism markets, the U.S. and UK, will also be allowed to enter.
• Japanese Prime Minister Suga said the pandemic state of emergency around the Tokyo region will be lifted on Monday.  The move will allow easing pandemic restrictions and increased economic activity in the vital Tokyo area.

 U.S. Policy Response

• The House passed a bill extending the deadline for applying for a Paycheck Protection Program loan to May 31, sending the legislation to the Senate as the current March 31 deadline looms.  The House vote was 415-3, suggesting broad support for extending the deadline.

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