Daily Comment (March 23, 2021)

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we first provide an overview of the evolving infrastructure and economic plan being developed within the Biden administration.  Complementing the additional fiscal stimulus from that bill, we note that Federal Reserve Chair Powell will begin two days of testimony before Congress today, where he will reiterate the Fed’s commitment to a loose monetary policy.  We next turn to various international news, including still more tensions with China, before ending with an overview of the latest coronavirus developments.

U.S. Fiscal Policy:  Officials in the Biden administration are reportedly developing a multipart infrastructure and economic plan that would total approximately $3 trillion over ten years.  The first part of the plan would include spending on roads, bridges, and other infrastructure, including projects designed to address climate change.  The second part would consist of measures focused on education and other priorities, including extending the newly expanded child tax credit, scheduled to expire at the end of the year, and providing for universal prekindergarten and tuition-free community college.  The plan, which is still preliminary, is due to be presented to President Biden this week.

  • If the proposals add up to $3 trillion over a decade, that will represent 1% of GDP and a 5% increase in federal spending beyond current projections.  Senior administration officials have discussed raising taxes on companies, among other options, to offset the cost of the spending packages.
  • Obviously, an economic plan anywhere near $3 trillion would generate strong pushback from Republicans in Congress and potentially from centrist Democrats as well, especially if there are tax increases involved.  The administration has tried to lure those lawmakers with the promise that they could earmark some funds for their own districts, but the incentives may not be enough to get the bills passed.
  • In any case, the continuing work on a new bill, after the $1.9 trillion pandemic relief bill just signed into law, will help keep alive expectations for additional fiscal stimulus and further upward pressure on inflation.  The result will likely be continuing upward pressure on stocks and volatility for bonds.

U.S. Monetary Policy:  Doing his best rendition of a broken record, Fed Chair Powell will say at today’s hearing of the House Financial Services Committee that even though the economic recovery from the coronavirus pandemic appears to be progressing and strengthening quicker than expected, it is still far from complete.  Therefore, according to Powell, the Fed will continue to keep its monetary policy extraordinarily loose.  That should further buoy equities, but because of concerns that loose policy will boost inflation and force the Fed’s hands at some point, Powell’s stance could also keep bonds volatile.

  • Separately, the Norwegian central bank said that a faster-than-expected pickup in global economic activity coupled with notable growth in domestic house prices has prompted it to advance plans to boost interest rates from zero.  It now expects to hike rates before the end of 2021, which would make Norway the first major developed country to hike rates, although a couple of large emerging markets have also done so recently.
  • The Norwegian announcement will likely increase speculation that the Fed could tighten policy earlier than Chair Powell keeps signaling.

United States-China:  The U.S., Canada, the United Kingdom, and the European Union unveiled sanctions against a range of Chinese officials and a paramilitary organization involved in the mass detention campaign against ethnic Uyghurs in China’s northwestern Xinjiang region.  The Chinese government responded by imposing its own sanctions on several EU officials and organizations, prompting a warning by some EU parliament members that the market-access deal recently negotiated between the bloc and China is now in jeopardy.

  • For the U.K. and the EU, the decision marks the first use of human rights sanctions against China since the crackdown on the Tiananmen Square democracy movement in 1989.
  • Separately, U.S. Secretary of State Blinken and EU foreign policy chief Borrell will relaunch the U.S.-EU China Dialogue in Brussels on Wednesday.  The dialogue, focused on security and human rights, was set up late in the Trump presidency, but it failed to gain traction because of EU frustration over Trump’s approach to foreign policy.
  • Taken together, the coordinated sanctions and relaunch of the U.S.-EU China Dialogue provide additional evidence that the Biden administration is gaining traction with its effort to build a unified alliance against a range of Chinese behaviors.  Given China’s enormous economic heft, it’s still not clear how far the U.S. allies will go in pushing back against China.  For now, however, the trend is clear that tensions will likely keep increasing between the liberal democracies and China, potentially leaving investors in the crossfire.

United States-Mexico-Guatemala:  President Biden is sending two high-level officials to Mexico and Guatemala this week for consultations about ways to stem the recent surge in migrants seeking to cross into the U.S. over the southern border.

Norway-Russia:  In another sign of tighter restrictions on cross-border trade and investment, the Norwegian government said it will block Rolls-Royce (RYCEY, USD, 1.57) from selling a Norwegian engine maker to a Russian company over concerns it could allow sensitive technology to end up in Russian hands.

Israel:  The country will hold its fourth parliamentary elections in two years today, with Prime Minister Netanyahu trying to leverage his government’s super-fast vaccination program and economic reopening against several upstart centrist parties.

Saudi Arabia-Yemen:  Under pressure from the U.S., the Saudi government proposed a ceasefire and UN-sponsored political consultations to end the civil war in Yemen, but the Iranian-backed Houthi rebels immediately rejected the idea.

COVID-19:  Official data show confirmed cases have risen to 123,778,489 worldwide, with 2,725,516 deaths.  In the United States, confirmed cases rose to 29,870,135, with 542,993 deaths.  Vaccine doses delivered in the U.S. now total 156,734,555, while the number of people who have received at least their first shot totals 82,772,416.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


  • Newly confirmed U.S infections rose to a bit more than 50,000 yesterday, although that remained lower than the seven-day moving average of 54,308 and the 14-day moving average of 53,989.  The figures are consistent with the recent plateauing or even slight rebound in cases as more transmissible variants battle it out against expanding vaccinations.  On a more positive note, new deaths totaled only 593.
  • In West Virginia, state officials opened up vaccinations to anyone over the age of 16, joining a range of other states lowering age requirements in an effort to broaden the injection program.
  • In U.S. clinical trials aimed at securing approval from the FDA, interim data showed the vaccine developed by AstraZeneca (AZN, USD, 51.20) was 80% effective in participants aged 65 and over, a group previous AstraZeneca trials lacked in large numbers. The shot was also found to be 100% effective in preventing serious illness and hospitalization across ages and ethnicities.  Less than a day later, however, officials at the National Institute of Allergy and Infectious Diseases said an independent data monitoring board working with the company in conducting its trials “expressed concern that AstraZeneca may have included outdated information from that trial.”
    • The agency said it was urging AstraZeneca “to review the efficacy data and ensure the most accurate, up-to-date efficacy data be made public as quickly as possible.”  However, the company hasn’t responded to the concerns so far this morning.
    • In its initial data release, the company said it would continue to analyze the data and plans to request emergency authorization in the U.S. by mid-April.  If authorized by the FDA, the vaccine could become the fourth injection available in the U.S. starting in May.
    • What would have been a vote of confidence for the AstraZeneca shot will now likely heighten concerns about its efficacy and safety.  The development could also increase vaccination hesitancy among some people, although the overall rapid pace of vaccinations in the U.S. will likely continue.
  • British Prime Minister Johnson has sent an emissary to Brussels in an effort to defuse the “vaccine war” with the EU, in which each side has threatened or allegedly disrupted vaccine exports to the other.  At least part of the issue is that AstraZeneca appears to have promised more doses of its vaccine than it can deliver to both the U.K. and the EU.  Coupled with today’s news of the potentially outdated trial results in the U.S., the spat presents a further reputational risk for the company.
  • In news related to coronavirus treatments, Regeneron Pharmaceuticals (REGN, USD, 483.22) said its antibody drug reduced the risk of COVID-19 hospitalization or death by about 70% in a large clinical trial, the most definitive evidence yet that the medicine can aid recovery early in the course of the disease.

 Economic and Financial Market Impacts

  • The European Central Bank released data showing euro banknotes in circulation rose by €156 billion over the past year despite cash falling as a share of daily transactions.  The 12.2% jump in physical euros in circulation mainly stemmed from EU households hoarding more cash in response to the uncertainty and disruption of the pandemic.
  • In Japan, the average price of land has fallen for the first time in six years, due to a decline in demand for urban commercial property in the midst of the pandemic.  The price of land in all categories, including residential and industrial, fell 0.5% from a year earlier, as of January 1, compared with a 1.4% rise a year earlier.  Land prices across all categories in the Tokyo, Osaka, and Nagoya metropolitan areas, the three largest, slipped 0.7% from the previous year, while rural land prices dipped 0.3%.
  • One silver lining from the move to remote work during the pandemic is that many people with disabilities found it easier to work and land jobs.

Foreign Policy Response

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