by Patrick Fearon-Hernandez, CFA, and Thomas Wash
[Posted: 9:30 AM EDT] | PDF
Good morning! Today’s report begins with updates on stablecoin and the war in Ukraine. Next, we go over the latest U.S. economic and policy news, including a discussion about Fed Chair Powell’s Senate confirmation for a second term. We then review international news, focusing on the USDA’s wheat production outlook. We end with our daily pandemic coverage.
After a rough few days, the crypto market is showing signs of improving. Tether, the world’s biggest stable coin, was able to regain its peg to the dollar, to the relief of many of its investors. Meanwhile, Bitcoin is now trading above $30,000 after falling below $25,000 a day prior. That being said, crypto remains risky. Terra Blockchain has halted the trading of its tokens. Meanwhile, crypto.com and Binance have suspended the trading of several other digital tokens. So far, there are no signs that U.S. money markets were affected by the recent turmoil in stablecoins. Although some stablecoins are backed by assets like U.S. Treasuries and commercial paper, the recent redemptions have not caused havoc in the financial system. The resiliency of money markets suggests that market conditions remain stable. However, we still suspect that the recent crypto panic will lead to calls for more oversight within the crypto markets in the future.
On the war front, Russia and Ukraine remain at a stalemate. Ukrainian forces have had some success in pushing back Russian troops. Still, some areas within Ukraine remain firmly under Russian control. Talks between leaders of both sides are infrequent. In a phone call with German Chancellor Olaf Scholz, Putin stated Kyiv has essentialy blocked peace talks.
- Finland announced its intention to join NATO. The country’s admission into the military alliance would place a NATO ally along the Russian borders. Moscow has argued that NATO expansion is what provoked its decision to invade Ukraine. In response to Finland’s potential bid, Russia announced it would send troops along its shared border once it formally applies.
- A study conducted by the Swedish government suggested that Russia would be less likely to attack the Baltic-Nordic region if Sweden joined NATO. The findings could pave the way for Sweden to apply to join NATO.
- Turkey has stated it would likely not back Sweden or Finland’s bid to join NATO. Its reluctance is due to the two countries harboring Kurdistan Workers’ Party (PKK) members. The EU, Turkey, and the U.S. have labeled the group a terrorist organization, and to join NATO, Sweden and Finland would need the approval of every member of the alliance. Nevertheless, this may not deter the countries from applying.
- European gas prices soared 10 percent on Thursday after Vladimir Putin reduced the amount of natural gas going into Germany. The cut in supplies was in retaliation for sanctions. The move will likely force the EU to take more significant measures to reduce its dependency on Russian energy.
- Chinese officials are becoming more vocal about their dismay with Russia. A Retired Chinese diplomat, who served in Kyiv and Moscow, gave a speech questioning Russia’s value to China. He argued Russia was in historical decline and the war proved that Beijing exaggerated Putin’s leadership skills. Even though there is no evidence that China will abandon Russia, the diplomat’s speech hints that elites in China are growing restless with the ongoing war.
U.S. economic policy news
The Senate confirmed Federal Reserve Chair Jerome Powell for a second term. He received an overwhelming majority of votes (80-19), suggesting the Senate still trusts Powell to decrease inflation.
- In an interview, Powell showed signs of regret for not raising rates sooner but maintained that officials were making decisions based on the data available at the time. His remarks prove he may give up hope that inflation is transitory. If true, it could mean the Fed may become more hawkish.
- The White House is hosting a group of Southeast Asian countries on Friday. The meeting is designed to build closer trade and military ties between the U.S. and Indo-Pacific countries. The Biden administration is currently holding discussions with Southeast Asian countries as his administration looks to rewrite trade standards. The U.S. courtship of these countries is another example of its rising competition with China. Integration of Indo-Pacific countries could boost trade and bring down inflation in the long run.
In Europe, Spain and Portugal are passing legislation that will put a cap on gas prices. The EU permitted the two countries to act outside the bloc’s common market price-setting rules. Although there are ongoing discussions about implementation, the move could pave the way for more price controls within Europe as countries try to tame inflation.
- Qatar has stepped in to try to help the U.S. and Iran come to revive the nuclear pact signed in 2015. The deal was close to being settled in March, but at the last minute, Iran demanded the removal of the Islamic Revolutionary Guard Corps, its elite security force, from the U.S. Foreign Terrorist Organizations list.
- The latest World Agricultural Supply and Demand Estimates report showed that the global stockpile of wheat would fall to a six-year low in the upcoming season. The report attributes the lack of production to the war in Ukraine and drought in major wheat-producing countries. Food inflation will probably be a problem due to this lack of production.
- In Indonesia, the spread of foot-and-mouth disease in cattle threatens the country’s beef supply. The outbreak could boost beef imports, especially in July when the Eid al-Adha festival starts.
COVID-19: The number of reported cases is 519,936,669, with 6,259,865 fatalities. In the U.S., there are 82,325,687 confirmed cases with 999,111 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The CDC reports that 734,783,455 doses of the vaccine have been distributed, with 580,514,653 doses injected. The number receiving at least one dose is 257,707,346, the number of second doses is 220,461,007, and the number of the third dose is 102,011,446. The FT has a page on global vaccine distribution.
- In an escalation of its extreme Zero-COVID strategy, the Chinese government announced it would strictly limit “unnecessary” foreign travel for its citizens. The announcement comes as China looks to tame a surge of rising COVID-19 cases. In Beijing, officials announced the city would not be locked down. On Thursday, rumors of a possible lockdown led to runs on grocery stores as people prepare to be stuck at home.
- In Shanghai, officials announced it expects to stop the “community spread” of COVID-19 by May 20. This statement could mean that officials might loosen restrictions soon.
- The number of COVID-19 cases in North Korea has accelerated. A day after it admitted that it had its first case of COVID-19, the country announced the virus had caused six deaths and 350,000 cases since April. The outbreak provides insight into how dangerous the virus can be for countries with relatively low immunity.