Daily Comment (October 29, 2021)

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 lower open this morning. Today’s report begins with international news, followed by U.S. economics and policy coverage.  China news is next, and we conclude with our pandemic coverage.

International news: 

  • The European Union is expected to accept a quota on its exports to the U.S. of steel and aluminum. The deal would end a three-year standoff over metal tariffs. In 2018, then-President Trump imposed tariffs on steel and aluminum because of national security. The new agreement allows for the removal of tariffs on European metals as long as shipments to the U.S. don’t exceed a predetermined number. A similar arrangement was made under President Trump but was dismissed by European diplomats as being petty. The arrangement is further evidence that the relationship between the two sides is slowly starting to unravel.
  • The tension between the U.K. and the EU over fishery licenses escalated on Thursday after France seized a British boat in French waters. The dispute between the sides started when French fishermen received only half of the licenses needed to fish in British waters. In their defense, the British claimed to have given licenses to vessels that met requirements. The French have threatened to impose sanctions if these licenses aren’t given to the fishermen by November 2. The back and forth is another example of post-Brexit tension. If left unchecked, this could possibly lead to a hard Brexit. In the past, the U.S. has intervened to mediate tensions between European countries.  However, lately, it has shifted its focus to the Pacific. As a result, it isn’t clear how this dispute will resolve itself.
  • On Thursday, Taiwanese President Tsai Ing-wen confirmed a Wall Street Journal story claiming there were U.S. troops deployed on the island. In an interview with CNN, she acknowledged that U.S. military presence on the island is part of Taipei’s broader cooperation with Washington. The revelation comes after allegations that Taiwan’s military isn’t prepared to defend itself from a possible invasion from China, something Chinese officials have indicated as being inevitable. The deployment of troops in Taiwan highlights the level of seriousness that both Taiwan and the U.S. have taken against China’s growingly assertive posture toward the region. China has since asked the U.S. to withdraw troops from the island, but it is unlikely this would happen.
  • The global chip shortage appears to be getting worse as firms are complaining of even longer wait times.
  • Natural gas and power prices fell in Europe after Russian President Vladimir Putin reassured the continent that it would send extra gas. The move is likely another example of the amount of sway Moscow has in its ability to influence energy markets in Europe. Over the last few weeks, Putin has been accused of intentionally withholding gas to pressure Europe into approving the Nord Stream 2 pipeline, a pipeline linking Germany with Russia.
  • Global authorities have started to pressure operators of blockchain-based decentralized finance services to comply with anti-money laundering rules.
  • Moldova’s prime minister, Natalia Gavrilita, has asked for help from the EU as the country tries to stave off pressure from Moscow. Recently, Moldova was forced to declare a state of emergency after Gazprom (OGZPY, $10.03), a majority state-owned energy company, reduced gas deliveries by a third and threatened to cut off the country completely if it didn’t agree to a more expensive contract. In talks, Moldova was told it could receive a better contract if it agreed to adjust its free-trade deal with the EU and delay energy market reforms. This bullying from Russia is further evidence that it has weaponized its energy resources.
  • France is pressuring Brussels to delay trade talks until after the French elections take place in April.

Economics and policy:

  • During the pandemic, there was a record jump in the number of business formations. According to the Census Bureau, new filings for employer identification numbers surged 57% in 2020 and are on track to make a similar jump this year. The increase in business formation may be another reason employers are struggling to find workers. An increase in stimulus and leisure time due to the lockdown may have inspired workers to start ventures of their own, thus, leading to a decrease in the number of available workers and an increase in labor demand. If true, this could mean the labor shortage could be a longer-term problem.
  • Speaker of the House of Representatives, Nancy Pelosi, was forced to delay the vote on the Bipartisan Infrastructure bill after progressives threatened to vote it down. Progressives have signaled they would not support the infrastructure bill without reassurances that the social spending bill has the support from moderate Senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV). The setback has placed more uncertainty as to whether President Biden will be able to get the bills pushed through Congress. So far, Manchin has signaled support of a social spending bill that cost $1.75 trillion. However, it is still unclear where Sinema stands. President Biden has stated that the success of his presidency rests on the passage of these two bills. Failure to pass either bill could lead to weaker growth prospects in the future.
  • Analysis by the St. Louis Fed shows the pandemic has forced many baby boomers into retirement.


COVID-19:  The number of reported cases is 245,655,515, with 4,983,764 fatalities.  In the U.S., there are 45,826,252 confirmed cases with 743,362 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 510,735,525 doses of the vaccine have been distributed, with 417,795,537 doses injected.  The number receiving at least one dose is 221,348,530, the number of second doses is 188,281,747, and the number of the third dose, the highest level of immunity, is 15,417,340. The FT has a page on global vaccine distribution.

  • A significant percentage of unvaccinated workers said they would quit their jobs if required to get vaccinated or get tested weekly. According to a study conducted by the Kaiser Family Foundation, over 70% of unvaccinated workers would quit over a strict vaccine mandate, and nearly 40% said they would quit if there was an additional possibility of being tested weekly.

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