by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Our Daily Comment today opens with the latest coronavirus news, given that optimism over a last-minute deal on pandemic relief legislation seems to be supporting the risk markets so far this morning. As we note after the coronavirus section, however, there are also some less conducive news items today, including a likely new regulatory move against a U.S. technology giant and further geopolitical tensions with China and Russia.
COVID-19: Official data show confirmed cases have risen to 40,464,761 worldwide, with 1,119,369 deaths. In the United States, confirmed cases rose to 8,215,605, with 220,134 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 more than 58,000 yesterday, lifting the key seven-day moving average to more than 56,007 and the 14-day moving average to 52,625. The seven-day moving average of deaths held relatively steady at about 700, but hospitalizations continue to trend higher. In Europe, new infections and hospitalizations are surging in countries including the U.K., Ireland, and France. The infections and hospitalizations are now at their highest levels since the first wave in the spring, prompting localized lockdowns. In contrast, new infections in Asia remain contained.
- In London, healthy volunteers who have been inoculated with various vaccine candidates will be purposefully infected with the coronavirus early next year in the world’s first COVID-19 “challenge trials.” The trials will test which vaccines do a better job of protecting people from the disease. The project, first disclosed by the Financial Times last month, was announced publicly today with an initial £33.6 million of public funding.
- The CEO of Moderna (MRNA, 70.96) said the federal government could authorize the emergency use of his company’s experimental COVID-19 vaccine as early as December if the company gets positive interim results in November from a large clinical trial. Despite resurgent infections in some countries and temporary setbacks for other vaccines and treatments in development, the Moderna news shows that with the large number of compounds moving rapidly through their clinical trials, there is likely a good chance that a safe and effective shot will be approved in the coming months. Since that could help end the crisis, the news should probably be taken as a positive for stocks.
- Throwing a lifeline to struggling movie theaters, the Universal Pictures studio owned by Comcast (CMCSA, 44.33) said it will release several lower-budget films during the holiday in order to ensure cinemas have enough content to draw in patrons.
U.S. Policy Response
- In negotiations yesterday, House Speaker Pelosi and Treasury Secretary Mnuchin reportedly edged closer to ironing out some of the remaining policy differences holding up a new coronavirus relief package.
- However, it remains unclear whether they can reach an agreement by the end of today, after which Pelosi claims it would be impossible to complete the legislation before the November 3 election.
- Even if Pelosi and Mnuchin strike a deal and the House passes a bill, any legislation with a price tag in the likely range of about $2 trillion would still face considerable opposition from Republicans in the Senate. Those senators continue to push for much smaller, targeted bills that are rejected by the Democrats in control of the House.
- Federal Reserve Vice Chair Clarida said it is possible that the recession that began in March has already has ended, though it could take another year before broad measures of economic output fully recover to their pre-pandemic levels, and additional monetary and fiscal stimulus would likely be needed.
- As polling and decision markets continue to point toward a potential Democratic sweep in the November election, which could lead to an expanded pandemic relief bill, more investors are starting to bet on falling prices for government bonds and other safe-haven assets with longer maturities. The so-called “yield steepening” moves can be seen in the recent rise in 10-year and 30-year U.S. Treasury yields. However, we caution that higher long-term yields will likely force the Fed to decide whether it will actually implement yield curve control.
Foreign Policy Responses
- In a sign that the European Union could find strong demand for its future common debt if its €750 billion coronavirus recovery package is approved as expected later this year, the bloc yesterday met with a huge demand for a €17 billion issue of new coronavirus-related bonds offered under a separate program. These bonds will provide loans to support member states’ efforts to keep workers in their jobs during the pandemic.
- We continue to believe next year’s big, new issuance of bonds backed by the full faith and credit of the EU member states will be instrumental in making the euro a more viable reserve currency.
- Strong demand for EU debt helps to confirm that view and should be positive for the euro and negative for the greenback.
U.S. Technology Sector: The Justice Department today will file an antitrust lawsuit against Google, a unit of Alphabet (GOOG, 1,534.61), alleging the company engages in anticompetitive conduct to preserve monopolies in search and search-advertising. The long-anticipated case will mark the most aggressive U.S. legal challenge to a company’s dominance in the tech sector in more than two decades, highlighting the growing regulatory risk to the tech stocks that have been driving the markets higher for most of this year.
U.S.-Russia Arms Control: The U.S. and Russia are reportedly on the verge of a nuclear arms control deal that would not only extend the New START agreement for one year, but would also freeze the number of nuclear warheads on each side for that period as the Trump administration has been advocating. However, the administration has been pressing Russia for a deal that would give President Trump a diplomatic achievement in the runup to the U.S. election in November, and the top U.S. negotiator, Marshall Billingslea, has seemed to overstate how the negotiations are going. It therefore might be prudent to wait for confirmation from the Russian side that a deal truly looks imminent.
U.S.-Russia Cyberwarfare: Federal prosecutors in Pittsburgh, where some of the FBI’s top cybercrime investigators work, yesterday unsealed charges against six Russian intelligence officers for some of the most infamous cyberattacks of recent years, including hacks that took down the Ukrainian electricity grid in 2015 and 2016 and the NotPetya attack that destroyed billions of dollars of computer equipment worldwide in 2017. The indicted officers all work the same branch of Russia’s military intelligence service that was indicted for interfering in the U.S. presidential election of 2016.
Sweden-China: The Swedish government announced that it will ban Chinese telecom giants Huawei (002502.SZ, 2.78) and ZTE (ZTCOY, 4.98) from its 5G mobile networks, as recommended by its armed forces and security services. The move also comes after the U.S. government’s concerted warnings that the equipment could facilitate Chinese spying. This aligns Sweden closer with the U.S., and therefore will likely worsen tensions with China. Nevertheless, despite the increasing tensions between China and the Western democracies, new share sales are surging in China on the back of increased economic and financial optimism.