Daily Comment (May 25, 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 the latest details on the Belarusian “state hijacking” and its impact on geopolitical relations between the U.S., Europe, and Russia.  We then continue with other international news ranging from China and Russia to Turkey and Ecuador.  We end with the latest developments on the coronavirus pandemic.

European Union-Belarus:  EU leaders imposed new sanctions on Belarus and banned Belarusian airlines from entering EU airspace to punish the Lukashenko government for an incident over the weekend.  A jet fighter was ordered to force a civilian airliner flying over Belarusian territory to land and then arrested an opposition journalist on the plane.  Separately, British Foreign Secretary Raab said the U.K. was suspending the Belarusian national airline’s permit to operate in British airspace and would advise British airlines to avoid the former Soviet Republic’s airspace.  President Biden said his administration was also considering punishments.

United States-China:  Goldman Sachs (GS, $368.29) won approval from Chinese regulators to launch a joint-venture asset management company in China with the Industrial and Commercial Bank of China (IDCBY, $12.70).  That follows an announcement earlier this month that BlackRock (BLK, $872.36) won approval for a joint venture with the China Construction Bank (CICHY, $15.86).

  • The decisions demonstrate that China continues to implement economic reforms in select areas, opening up opportunities for U.S. investors.
  • However, by giving major U.S. financial firms a greater interest in good U.S.-China relations, Beijing probably hopes the firms will lobby Washington to cool bilateral tensions.

United States-Russia:  The U.S. and Russia may be ready to announce a date for the first summit meeting between Presidents Biden and Putin.  In a news conference today, Kremlin spokesman Dmitry Peskov told reporters an announcement related to a summit would be coming “soon.”  Based on its sources, a Swiss newspaper yesterday said the summit will be held in Switzerland.

Global Commodity Sector:  Even though the post-pandemic commodity boom is boosting profits for miners, they aren’t throwing cash at new projects, raising concerns about future shortages and higher prices for some metals.

  • So-called technology metals, such as cobalt, copper, and lithium, are set for particularly large deficits amid rising demand for batteries, electric cars, and wind turbines.
  • As we’ve noted before, the dearth of new oil and gas projects is also likely to buoy energy prices into the future, despite the long-term trend toward renewables.

Turkey:  In the latest sign of political interference in Turkish monetary policy, President Erdogan has dismissed Oguzhan Ozbas, one of the central bank’s deputy governors and a member of its monetary policy committee.  He replaced him with Semih Tumen, a presidential adviser and a professor of economics at TED University in Ankara.  Erdogan has now replaced three senior central bank officials in just the last two months, on top of numerous other personnel changes in recent years.  He makes these moves as he pushes his unconventional view that high interest rates are a cause, rather than a cure, for Turkey’s high inflation and financial problems.  In response, the lira has plunged some 14% since March, although the currency has reacted little to today’s news.

Ecuador:  Conservative businessman Guillermo Lasso was sworn in as the country’s new president yesterday.  In his inauguration speech, Lasso decried corruption and authoritarianism and vowed to address the country’s massive economic and social challenges.

COVID-19:  Official data show confirmed cases have risen to 167,367,952 worldwide, with 3,475,611 deaths.  In the United States, confirmed cases rose to 33,144,178 with 590,697 deaths.  Vaccine doses delivered in the U.S. now total 357,250,475, while the number of people who have received at least their first shot totals 163,907,827.  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 totaled just 25,925 yesterday, essentially in line with the seven-day moving average of 24,794 and a bit lower than the 14-day moving average.  The nation’s mass vaccination program is now proceeding somewhat slower than it was early in the spring, largely due to the highest-priority and most-avid vaccine seekers already having their shots, but it continues to inoculate almost two million people per day.  Data from the CDC indicates 49.4% of all U.S. residents have received at least one injection, and 39.3% are fully vaccinated.
  • Citing a new study, Moderna (MRNA, $164.17) said its vaccine has similar effectiveness in adolescents aged 12 to 17 as it has in adults and would apply in early June for regulatory approval to give the vaccine to that age group.  The news should be positive for risk assets because approval of the shot for adolescents would further broaden and accelerate the global vaccination drive.
  • A new Axios/Ipsos poll indicates that among those people who have been vaccinated, only 47% say they’re still wearing a mask at all times outside the home, a steep drop from 65% two weeks ago.  The poll also indicates people are very skeptical about strangers’ honesty regarding their vaccination status.
  • Despite the continued positive progress against the pandemic at home, the State Department yesterday warned U.S. citizens against all travel to Japan because of the risk posed by that country’s high infection rate.
  • In Australia, the government has reintroduced social-distancing restrictions in Melbourne following the discovery of a COVID-19 cluster that experts warn could derail one of the world’s most successful efforts to suppress the virus.  Nine cases of the variant first identified in India have been detected in the city’s northern suburbs, breaking an 86-day run without a locally transmitted infection outside of hotel quarantines.
  • A long article in the Wall Street Journal provides new revelations regarding virus-driven illnesses linked to bats and the Wuhan Institute of Virology (WIV) in Southwest China prior to the pandemic.  The article also highlights various inconsistencies and corrections in statements by Chinese officials and a potential conflict of interest for a U.S. researcher who has supported China’s insistence that there is no need for a further investigation of the WIV.  The new revelations may put additional pressure on the Chinese government to be more forthcoming about the origins of the pandemic.

 Economic and Financial Market Impacts

  • As more evidence of the big economic rebound expected when economies open up again, non-official, real-time data showed that Britons quickly returned to their favorite pubs and restaurants after the country lifted restrictions on May 17.  In fact, bank transaction tracker Fable Data said U.K. consumer spending between Monday and Wednesday last week was 10% higher than the levels recorded for the same days in 2019, before the pandemic hit.
  • As the Chinese economy continues to perform well, benefiting from its first-in, first-out experience with the pandemic, the renminbi hit a three-year high against the dollar today.  The onshore-traded renminbi gained 0.2% to trade at 6.4052/$, its highest point since June 2018.  With a gain of approximately 10% over the last year, the currency is now creating a quandary for monetary policy officials who fear that the appreciation will slow growth or exacerbate the risk of asset bubbles.

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