Daily Comment (November 24, 2020)

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

[Posted: 9:30 AM EDT] | PDF

Our Daily Comment today opens with news related to the presidential election and transition.  The Trump administration is now allowing Vice President Biden’s team to access federal resources for the transition of power, and the resulting reduction in uncertainty is giving a boost to risk assets from equities to crude oil.  We also discuss developments overseas and the latest on the coronavirus.  As a reminder, for Thanksgiving, the Daily Comment will take a couple of days off, with no comment after today.  We will return on Monday, November 30.  There will also be no Asset Allocation Weekly (AAW) or Weekly Energy Update (WEU) next week.

U.S. Presidential Election:  Michigan certified Vice President Biden’s win in that state, and the Pennsylvania Supreme Court declined to invalidate thousands of mail-in and absentee ballots with minor errors that favored Biden.  As late as yesterday, President Trump vowed to continue his long-shot legal challenges to overturn Biden’s win, but his already-low chance of success continues to decline as his campaign has failed to produce credible, admissible evidence of significant electoral irregularities.  In a sign that companies are already shifting their behavior in response to Trump’s loss, General Motors (GM, 44.77) said it will no longer back the Trump administration’s legal battle to strip California of its authority to set its own fuel-efficiency regulations.  Instead, GM said its goals for green cars are aligned with the state and the incoming Biden administration.

U.S. Presidential Transition:  Against the backdrop of the developments in Michigan and Pennsylvania, General Services Administration chief Emily Murphy yesterday determined that Vice President Biden has qualified for the resources and services available to the winner of the presidential election.  The decision allows Biden and his team to begin the formal transition of power in the normal manner.  Even before that news came out, however, the Biden team disclosed several key picks for the president-elect’s cabinet.  Overall, the picks noted below, as well as others that have also been disclosed, point to a relatively centrist, establishment-oriented economic and foreign policy team that is deeply experienced and knowledgeable about how Washington works.  The team members, many of whom have a history of working closely with Biden, are also committed to U.S. global leadership and constructing a broad coalition of allied democracies as the best way to channel China’s rise and counter its malign geopolitical and economic moves around the world.  However, it remains quite unclear how effectively the team will be able to counter calls for global retrenchment from populists on both the left and the right.  The key picks include:

Brexit:  As the United Kingdom and the European Union approach the year-end negotiating deadline for a post-Brexit trade deal, officials on both sides are making a late push to ensure a smooth transition for financial markets.  For example, European regulators yesterday finalized a change seeking to avoid chaos in £15 trillion of derivatives contracts held between U.K. and EU counterparties.  Goldman Sachs (GS, 228.83) said it would set up a trading hub in Paris for Sigma X, its private European stock market, in order to ensure that its clients can still trade seamlessly, even after a hard Brexit.

Germany:  Spurred in part by the collapse of payment company Wirecard (WCAGY, 0.3425) because of a multibillion-dollar fraud, the DAX-30 index of German stocks is expanding to 40 members and will now require all potential members to achieve positive operating profit for two full years before joining.  In another rule change, DAX companies must have an audit committee that adheres to the German Corporate Governance Code.  To the extent that the rule changes tighten up listing standards, the moves could be positive for German equities going forward.

European Union-Turkey:  A German navy frigate trying to enforce the EU’s embargo on arms shipments to Libya was forced to abandon its search of a Turkish cargo ship suspected of delivering weapons to Libya after the Turkish government raised objections.  The incident will likely further hike tensions between the EU and Turkey, which have been exacerbated by Turkey’s aggressive territorial claims in the Mediterranean Sea and its activities in the Libyan civil war.

Yemen-Saudi Arabia:  Yemen’s Iranian-backed Houthi rebels claim to have damaged an oil facility in the Saudi port city of Jeddah in a rocket attack.  If true, the assault would demonstrate the rebels’ ability to strike deep into Saudi Arabia and damage large portions of its key oil production infrastructure.  Along with news pointing to a more certain U.S. presidential transition, the attack is helping boost global oil prices so far today.

COVID-19:  Official data show confirmed cases have risen to 59,342,857 worldwide, with 1,399,373 deaths.  In the United States, confirmed cases rose to 12,421,993 with 257,707 deaths.  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 169,190 yesterday, while the seven-day moving average stood at 172,118 and the 14-day moving average came in at 163,225.  Just as important, the number of U.S. hospitalizations rose to a record high of 85,836.  Deaths related to the virus totaled 889.  The U.S. and Europe remain the regions most afflicted by the new resurgence of the virus.
  • According to the University of Washington’s Institute for Health Metrics and Evaluation, the virus is now killing around 0.6% of the people it infects compared with about 0.9% at the beginning of the crisis in April.  Some scientists believe the actual death rate is currently only about 0.15%; the death rate is 0.10% for seasonal influenza.  In any case, today’s much lower death rates reflect factors like younger, healthier populations getting infected and much-improved treatment protocols.  The problem is that the death rate could climb again with the latest nationwide rise in cases as patients overwhelm hospitals, straining their capacity and staff, and lowering the quality of care.
  • Although there are several vaccine candidates close to getting approval for emergency use around the world, one big issue will be whether the trade-offs between their different characteristics will give some of them an edge over the others.  For example, the financial backers and developers of Russia’s Sputnik-V vaccine say its two shots required to vaccinate one person will cost “less than $20” on international markets and will be free of charge for Russian citizens.  That compares with a total cost of about $18 for the highly effective vaccine being developed by Pfizer (PFE, 36.52), which also requires difficult ultra-cold storage.  In contrast, the somewhat less effective vaccine being developed by AstraZeneca (AZN, 54.70) and Oxford University will reportedly be sold in Europe for around $3 per shot and will only require normal refrigeration.

 Economic Impacts

  • Now that there are three major vaccine candidates that appear to be safe and effective, a debate is arising about future inflation trends.  Some economists believe a strong economic rebound in 2021 and 2022 will boost price increases for an extended period, while others believe any inflation spurt would soon be overwhelmed by longer-term disinflationary trends like slowing population growth.

 U.S. Policy Response

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