Daily Comment (May 26, 2020)

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

[Posted: 9:30 AM EDT]

The rally in risk assets around the globe today comes as coronavirus restrictions continue to be lifted around the world, economic activity starts to increase again, and more potential vaccines make their way into trials.  So far today, those bright spots are offsetting the continued risk of second waves of the pandemic and renewed U.S.-China tensions.

COVID-19:  Official data show confirmed cases have risen to 5,519,878 worldwide, with 346,836 deaths and 2,253,651 recoveries.  In the United States, confirmed cases rose to 1,662,678, with 98,223 deaths and 379,157 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


Real Economy

Financial Markets

Foreign Policy Responses

Political Impact

China-Hong Kong:  Pro-democracy demonstrators filled the streets of Hong Kong again over the weekend to protest Beijing’s plan to impose a new national security law on the city, sparking clashes with police.  To reassure investors, President Xi insisted the legislation was benign, and China’s foreign ministry commissioner in the city said it would ensure “a more law-based, reliable and stable business environment for foreign investors.”  However, the proposal is still stoking investor concern that the legislation could undermine the rule of law in Hong Kong and produce a more politicized economic and financial system under Beijing’s thumb.   The crackdown on Hong Kong could also signal that President Xi will eventually take an even tougher stand on reunifying Taiwan with China, even as he pushes to gain Chinese control over the East China and South China Seas.  All of these aggressive initiatives, along with efforts to coopt countries ranging from the Philippines to Italy, carry the risk of U.S. sanctions, financial market decoupling, or, eventually, military clashes.  They also exacerbate other U.S.-China tensions ranging from trade relations to disputes over whether China is to blame for the coronavirus pandemic.  Hong Kong stocks have already been hurt by the proposed security law, but the worsening relationship between the U.S. and China also presents a risk to global stocks in the longer term.

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