Daily Comment (November 15, 2021)

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

[Posted: 9:30 AM EST] | PDF

Good morning and happy Monday!  U.S. equity futures are pointing to a higher open, while oil prices continue to decline.  President Biden will hold a signing ceremony for the infrastructure package today.  Our coverage begins with an overview of today’s leader summit with China and the U.S.  An update regarding tensions in Belarus and Ukraine follows.  We recap the COP26 next.  In our regular coverage, we begin with China and international news.  Economics and policy follow.  A word on crypto comes next, and we close with our usual pandemic update.

U.S./China virtual summit:  General Secretary Xi and President Biden will hold a virtual summit meeting today.  In some respects, this meeting is not really a summit.  In the past, summit meetings had agendas, and concrete decisions are usually made before the leaders meet.  That way, the summit is something of a signing event.  This meeting is much lower key.  The U.S. has been downplaying the event, and no clear objectives have been put forward.  We would expect several issues to be at least discussed.  First, the situation with Taiwan will almost certainly be on the agenda.  President Biden has, on more than one occasion, suggested the U.S will overtly defend the island from attack, which would be a departure from the strategic ambiguity that marks the relationship between the U.S., Taiwan, and China.  The second issue will be the intersection of Xinjiang and the Winter Olympics.  We expect Xi will invite Biden to come to the opening ceremony; all signs suggest that the U.S. president will decline.  However, we don’t expect a boycott from the U.S.

Although we don’t expect much from today’s meeting, we have seen some evidence of a thaw.  Recently, Xi sent a letter to the National Committee on U.S.-China relations suggesting China wants to enhance cooperation.  This missive was sent before today’s meeting.  The USTR has indicated that China is making progress on the Phase 1 trade deal.  It’s possible Xi has figured out that he has overplayed his hand.  The U.S. isn’t fading into the dark as quickly as Beijing thought, and the real estate issues in China are so bad that Xi needs to cool tensions with Washington to buy space and time to manage it.  If a thaw is underway, we may see more results today than we expect.

Ukraine/Belarus:  Although the Russian troop buildup on the Ukraine frontier isn’t directly tied to the refugee crisis on the Belarus/Poland border, they may be starting to affect each other.  Let’s start with Belarus.  Over the weekend, media reports indicate that Belarus is clearly weaponizing refugees.  Belarus is providing them visas, facilitating flights to Belarus, and encouraging them to go to the border with Poland.  Additional reports indicate Minsk transported these refugees to the border and provided them with “wire cutters.”  Conditions on the border are deteriorating rapidly.  There are an estimated 4,000 refugees from the Middle East on the border in a sort of “no-man’s land,” where the Polish border guards are pushing them back to Belarus, and the Belarusian counterparts do the same thing to the refugees on their side.  The EU is considering additional sanctions against Minsk for the ordeal, but it isn’t obvious that they will deter Lukashenko.  However, the EU has been able to use its influence to halt the boarding of Syrians and Iraqis to Belarus, which should slow the flow of refugees to the border.

Meanwhile, Russian President Putin reminded Belarusian President Lukashenko that the latter has no control over natural gas flows to the EU, even though the pipes transverse Belarus.  This chiding may suggest that Russia is finding Lukashenko’s actions tiresome.

In the midst of the border crisis, the U.S. is sending high-level warnings to the EU that Russia may be planning military actions against Ukraine.  SoS Blinken apparently discussed the situation with his French counterpart.  We know that Ukraine controls Crimea’s water supply, and we would not be shocked to see Russia use military force to secure flows to the area.  We don’t see the U.S. and Europe moving to support Ukraine with direct military intervention, and the Kremlin may have concluded it can force Ukraine back into its sphere of influence.

COP26:  The climate meeting ended over the weekend with disappointment, which says more about the optimism of the participants than the realistic expectations of what could be accomplished.  There was some progress on methane, but the ending of coal use was scotched by India and China.  International cooperation on climate issues suffers from the free-rider problem.  Thus, there are many comments on what needs to be done and how other nations need to take the painful steps to achieve that end.

China news:  Australia says it will support Taiwan.

  • Australia says it will support the U.S. in defending Taiwan if China attacks the island. It is further evidence the U.S. is building a coalition around China, attempting to isolate Beijing.
  • China is accusing the EU of upending global trade. The EU, like the U.S., is in the process of deglobalizing and building resilience into supply chains, which looks to China like trade barriers.  The EU, realizing the U.S. is serious about its pivot to Asia, is attempting to build relations in Southeast Asia.
  • As China tries to contain debt growth in its real estate sector, home prices are falling, a notable risk to its economy. As the sector retreats, there are growing worries the shrinkage will adversely affect other industries as well.
  • In response to the logistical problems, shipping firms are increasing orders for ships, which is boosting the fortunes of China’s shipbuilders…and maybe the PLA Navy.
  • Although the U.S. political class is turning against China, major American businesses have apparently not gotten the message or are choosing to ignore it. This divergence is a potential risk factor for these businesses.

International roundup:  Cuba sees rare protests, and a familiar name emerges in Libya.

Economics and policy:  Supply disruptions continue, and labor is gaining power.

Crypto news:  The SEC has rejected a bitcoin-backed EFT.  The U.S. has approved ETFs that are futures based but refuse to allow for those backed by bitcoin, fearing that the providers won’t be able to source the coin.  A Florida court case could reveal the real name of bitcoin’s creator.

COVID-19:  The number of reported cases is 253,474,331, with 5,103,223 fatalities.  In the U.S., there are 47,074,698 confirmed cases with 763,092 deaths.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high-frequency data on various factors.  The CDC reports that 553,802,305 doses of the vaccine have been distributed, with 440,559,613 doses injected.  The number receiving at least one dose is 226,607,653, while the number receiving second doses, which would grant the highest level of immunity, is 195,120,470.  For the population older than 18, 70.5% of the population has been vaccinated.  The FT has a page on global vaccine distribution.

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