Daily Comment (May 18, 2021)

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with a range of global news developments, touching primarily on the energy industry and the Middle East.  The Israeli-Hamas conflict remains a major story, although there has been little to no direct impact on the financial markets so far.  There is also a potential new migration crisis brewing in Spain.  We end our report with the latest news on the coronavirus pandemic, including reports that many major U.S. retailers are lifting mask mandates in their stores–a move that could further boost Americans’ optimism and encourage more spending.

Global Energy Industry:  The International Energy Agency issued a report saying that reaching a global goal of net-zero carbon emissions by 2050 would require stopping all new oil and gas exploration and development projects from this year forward, drastically cutting fossil fuel consumption, and dramatically boosting investment in renewable energy projects.  Given perceptions that the IEA is allied with the global oil and gas industry, the report is taken as a surprising concession supporting green policies.  However, it hasn’t had a noticeable negative impact on the energy markets so far this morning, as the price for Brent Crude has once again surpassed $70 per barrel.

United States-Israel-Hamas:  Following a call on Monday with Prime Minister Netanyahu regarding the Israeli-Hamas conflict, the White House stated that President Biden “expressed his support for a cease-fire and discussed U.S. engagement with Egypt and other partners toward that end.”  The statement said that Biden supported Israel’s right to self-defense, nevertheless urged Israel to try to minimize civilian casualties.  In a word, it amounted to only minimal pushback against what Israel describes as an effort to degrade Hamas’s rocket factories, underground tunnels, and other military infrastructure that has allowed it to attack Israel.  The latest reports indicate Israel continues to attack Hamas targets today, with a new focus on trying to kill Hamas leaders.

United States-China:  Chinese mobile telephone giant China Mobile (0941.HK, 50.10) said it plans to sell approximately $6.1 billion worth of shares in Shanghai, days after learning it would definitely be ejected from U.S. markets under a Trump-era investment blacklist.  The move illustrates how U.S. policies restricting investors from holding Chinese assets for reasons like national security or inadequate auditing standards will tend to bifurcate the U.S. and Chinese equity markets.

Spain-Morocco:  Raising the specter of a new migrant crisis in Europe, a record number of migrants have entered Spain’s north African enclave of Ceuta after Morocco scaled back the policing of its border, following a diplomatic rift between the two countries.  Reports indicate Spanish Prime Minister Sánchez has mobilized army troops in Ceuta to help the police and civil guard patrol the border.

  • Spanish-Moroccan relations have worsened since December, when President Trump said the U.S. would recognize Morocco’s sovereignty over Western Sahara, a former Spanish colonial territory, in return for Morocco’s recognition of Israel.  Morocco is now frustrated that Spain hasn’t followed the U.S. lead.
  • The Moroccan government is also angry that Spain is providing medical care to Brahim Ghali, the head of the Polisario Front, which has been fighting for the independence of the Western Sahara region for years.  We described the situation in Western Sahara in our Weekly Geopolitical Reports of March 1 and March 8.

Chile:  The country’s election agency announced that leftist and leftist-leaning groups have won approximately 70% of the seats in the special assembly that will draft Chile’s new constitution.  President Piñera’s conservative coalition fell short of the 33 1/3% needed to block changes to the current constitution, virtually assuring that the final document will pave the way for a significant increase in social spending and the state’s role in the economy while weakening the country’s free-market model.  The results drove Chilean equities and the Chilean peso lower yesterday, and they will likely continue to weigh on Chilean assets at least in the near term.

COVID-19:  Official data show confirmed cases have risen to 163,714,589 worldwide, with 3,392,575 deaths.  In the United States, confirmed cases rose to 32,994,769, with 586,470 deaths.  Vaccine doses delivered in the U.S. now total 344,503,595, while the number of people who have received at least their first shot totals 157,827,208.  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 jumped to 53,497 yesterday, well above both the seven-day moving average of just 33,213 and the 14-day moving average of 37,086.  Similarly, the number of new deaths related to the virus jumped to 401.  It wasn’t clear why new cases and deaths rose so much, but the numbers can be volatile.  Since the recent trends have been strongly downward, the jumps yesterday may not continue.  That’s especially the case as mass vaccinations continue.  The CDC reports that approximately 47% of U.S. residents have now received at least one dose of a vaccine, and 37% are fully vaccinated.
  • As most of the ardent vaccine seekers have probably now gotten their shots, local health officials are coming up with innovative ways to reach those who are open to the vaccines but want them to be convenient.  Many vaccine programs are now giving shots in places like public transportation facilities, restaurants, factories, and other places of employment.
  • Following the CDC’s new guidance last Thursday that fully vaccinated people may stop wearing face coverings in most indoor and outdoor settings, U.S. companies including Walmart (WMT, $138.89), Target (TGT, $210.02), CVS (CVS, $84.56), and Starbucks (SBUX, $110.98) have begun lifting requirements that staff and customers wear masks and practice social distancing in their stores.  Some firms, such as Macy’s (M, $19.16), will reportedly keep their mandates in place for now, but the broader lifting of restrictions could further encourage consumers to start spending again.
    • One question, however, is whether lifting the restrictions will make it harder to attract workers concerned about their health.
    • On the other hand, easing mask requirements for staff could make it easier to attract new employees who don’t want to deal with the hassle of wearing a mask for an entire work shift.
  • As more and more Americans get vaccinated, especially in older age groups, the number of people hospitalized with COVID-19 is skewing more toward younger people.
  • In Denmark, the leading political parties have agreed on an almost complete reopening of the nation’s economy starting this Friday.  Amid favorable progress on mass vaccinations and testing capabilities, the plan calls for public-sector workplaces, universities, sports and music clubs, zoos, theme parks, and saunas to open up again at the end of the week.  Only nightclubs will remain closed.
  • Despite the move toward normalization in some areas, virus mutations remain a concern.  In the U.K., the number of local areas where the Indian variant makes up more than half of sequenced cases has almost doubled in just the last week.
  • In Japan, the government is only now deciding it should consider allowing pharmacists to administer coronavirus vaccines, as the country’s mass vaccination program continues to proceed slowly.
  • President Biden announced that the U.S. will increase the number of vaccine doses it will share with other countries to 80 million, including 20 million doses of the vaccines from Pfizer (PFE, $40.11), Moderna (MRNA, $160.43), and Johnson & Johnson (JNJ, $170.39).

 Economic and Financial Market Impacts

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