by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Good morning! U.S. equity futures are signaling a higher open this morning. Today’s report begins with an international news roundup followed by U.S. economics and policy coverage. China news is next, and we end the report with our pandemic coverage.
- The European Union is advocating for the continent to start mining its own rare earth minerals. The plan, published by the European Raw Materials Alliance, asks governments and firms to support mining and processing through subsidies and sales quotas. The move is designed to reduce the EU’s reliance on China for its rare earths. Last week, China announced that it will consolidate all of its rare earth companies into two firms to gain better pricing power in markets. The demand for rare earths has increased as countries look to produce more electric vehicles. Last year, the EU overtook China in electric car sales. However, the push by Europe to mine its own rare earths does have a downside. The mining of rare earths is extremely pollutant, so the proposal could face some backlash from environmentalists.
- The leader of the World Trade Organization, Ngozi Okonjo-Iweala, is rumored to be considering resigning from her position, citing inertia. Since taking office, she has been unable to make any headway in achieving her policy agenda. She is believed to be seeking a resolution to fishery subsidies, reducing trade-distorting agricultural policies, and developing a framework to expand global trade in vaccines. Her frustrations were shared by her predecessor, Roberto Azevedo, who resigned for similar reasons. The WTO has struggled to get anything meaningful approved as China and the U.S. struggle for influence over the multinational organization. If Okonjo-Iweala steps down from her role in the WTO, it would likely add further chaos within the organization and make it harder for countries to resolve trade disputes.
- North Korea launched an anti-aircraft missile on Thursday in response to stalled nuclear talks with the U.S. After a failed summit with President Trump in 2019, the two sides have not met to discuss the removal of sanctions.
- Turkey, a NATO ally, announced that it could deepen defense ties with Russia. The proposal by Turkish President Recep Tayyip Erdogan includes developing war planes, jet engines, and space technology. The announcement will likely anger members of NATO who view Russia as a strategic threat to their interests. Erdogan’s decision to build closer ties with Russia has been attributed to his inability to get a meeting with President Biden. The U.S. has had a dicey relationship with Erdogan following his decision to purchase an anti-defense missile from Russia. Thus, his recent overture to Russia will likely further anger the U.S.
- The EU postponed trade talks with Australia as the fallout from the AUKUS deal continues. In September, Australia canceled a deal to secure submarines from France in favor of a deal with the U.S. and U.K. The EU, and particularly France, are still angry over the cancelled deal.
- Ethiopia expelled seven U.N. officials after the agency criticized the country’s treatment of the people of Tigray. The expulsion comes two days after the U.N. aid chief warned that the government’s blockade of aid likely led to a famine in the northern region of Tigray, an accusation Ethiopia has denied.
Economics and policy:
- House Speaker Nancy Pelosi delayed a vote on the infrastructure bill on Thursday likely due to a lack of support. She is expected to push for a vote on Friday. The holdup appears to be coming from progressives who are threatening to sink the infrastructure bill if the Senate does not vote on the $3.5 trillion spending bill. The delay of the vote underscores the growing friction between moderates and progressives within the Democratic Party. Moderates would like to reduce the price tag of the spending bill or increase the bill’s funding, meanwhile progressives believe that they have compromised enough after coming down from their original $6 trillion proposal to $3.5 trillion. The standoff between the two sides has escalated the chances that neither bill passes. That being said, moderates clearly have the advantage in negotiations as the infrastructure bill has a better chance of receiving bipartisan support having already passed the Senate with the help of Republicans. If Pelosi could corral votes from moderate Republicans in the House, she could offset the loss of support from progressives and make the passage of the infrastructure bill much more likely to happen. However, the same is not true for the spending bill, which will need every Democrat vote in the Senate in order to secure its passage.
- On Thursday, Senator Joe Manchin (D-WV) announced that he would like the spending bill to be cut to $1.5 trillion in addition to including natural gas in the clean energy program. Democrats have so far scoffed at the proposal but still appear willing to work with Manchin.
- A map developed by Axios shows that the Biden administration has prioritized trips to Asia and Europe. The map provides further evidence that U.S. foreign policy is becoming more focused on countering China’s influence in the Indo-Pacific region.
- On Thursday, President Biden signed a temporary stop-gap government funding bill that will avoid another shutdown for nine weeks.
- During her testimony before the House Financial Services Committee, Janet Yellen stated that she would like the power to raise the debt limit taken away from Congress.
- LinkedIn, which is owned by Microsoft (MSFT, $281.92), has received scrutiny for blocking the profiles of U.S. journalists in China. LinkedIn cited prohibited content as its reason for blocking the profiles. The move has led to backlash from U.S. policymakers. Senator Rick Scott (R-FL) sent a letter to Microsoft seeking answers.
- New rent data from Zillow suggests that average rents have increased more than 10% from the prior year. The increase in rent prices could further add to inflation woes. Most of the rise appears to be coming from areas that were forced to lower rent prices at the start of the pandemic, thus the sharp rise could be an indicator of things returning to normal. However, there is a possibility that rent prices could continue to increase as firms look to recoup earnings that they may have foregone during the pandemic.
- High energy prices have started to impact China’s manufacturing sector. On Thursday, China’s PMI revealed that its manufacturing sector fell into contraction territory in September. The dip was due to an increase in input costs resulting from the growing shortage of commodities. The shortage has led China to push firms to secure energy resources at all costs as it prepares for the winter.
- The Biden administration has warned China that it is willing to impose Trump-era tariffs on its imports if Beijing does not honor its agreement outlined in the Phase One trade deal. So far, China has lagged in its commitment to purchase $200 billion worth of U.S. trade goods. However, implementing tariffs would be harmful for U.S. firms that are struggling to deal with the high input costs. As a result, we suspect the administration will not likely be quick to implement these tariffs any time soon.
COVID-19: The number of reported cases is 233,799,148 with 4,784,202 fatalities. In the U.S., there are 43,459,971 confirmed cases with 697,849 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 474,245,945 doses of the vaccine have been distributed with 392,909,995 doses injected. The number receiving at least one dose is 214,332,261, while the number receiving second doses, which would grant the highest level of immunity, is 184,601,450. The FT has a page on global vaccine distribution.
- Vaccination mandates for healthcare workers have boosted rates to 90% or higher for most major healthcare employers.
- Merck & Co., Inc. (MRK, $75.11) announced that it has developed an antiviral pill, molnupiravir, that can reduce the risk of hospitalization or death by 50%. The discovery could make it easier for COVID-19 patients to receive at-home treatment. The company has stated that it will seek an emergency-use authorization from the U.S. Food and Drug Administration.
- More countries are beginning to turn down COVID-19 vaccines developed by China in favor of those developed by the U.S. or Europe. The shift comes as the Chinese vaccine, Sinovac, has proven to be less effective against the delta variant.