Daily Comment (October 21, 2020)
by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA
[Posted: 9:30 AM EDT] | PDF
Our Daily Comment today again opens with coronavirus news, based on investors’ strong interest in negotiations over a possible new pandemic relief bill out of Congress. The big news there is simply that the talks are continuing. After the pandemic news, we provide a recap of some foreign developments on what appears to be a pretty slow news day so far.
COVID-19: Official data show confirmed cases have risen to 40,877,528 worldwide, with 1,126,251 deaths. In the United States, confirmed cases rose to 8,275,168, with 221,083 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 topped 60,000 yesterday, lifting the seven-day moving average to 58,397 and the 14-day moving average to 53,970. The average of daily deaths from the virus held steady at approximately 700, but the number of hospitalizations rose to a two-month high of 39,230.
- In a report yesterday, the CDC said the pandemic has left about 299,000 more people dead in the U.S. than would be expected in a typical year. According to the report, about two-thirds of the excess deaths can be attributed directly to COVID-19, while the rest reflect other causes.
- Studies in Germany and Norway, as well as two reviews focusing on education globally, suggest widespread school closures would have a limited effect on curbing the pandemic. The research adds to evidence that schools are not necessarily a major vector in spreading the coronavirus. That’s probably bullish for equities because it bolsters the argument for reopening schools, which would help bolster economic activity and allow more people to go back to work.
- Given the importance of the vaccines under development, health authorities, hospitals and pharmaceutical companies are storing them in secure, undisclosed locations and taking other steps to protect the shots from theft.
- California’s Health and Human Services Secretary, Mark Ghaly, has announced guidelines that said large theme parks can reopen at limited capacity once nearby community spread of the new coronavirus has been officially deemed “minimal.” However, Walt Disney Co. (DIS, 124.95) blasted the protocols on the grounds that they would significantly complicate the company’s efforts to reopen Disneyland.
- New data on labor market dynamics during September suggest the decline in the unemployment rate last month came as much from jobless people giving up and dropping out of the labor force as from people finding new work. The figures can be volatile. Problems in the seasonal adjustment process could be a source of inaccuracy, but the data is still consistent with other indicators suggesting the robust post-lockdown recovery to date is probably losing steam.
- New York Governor Cuomo warned that his state’s governments and authorities will face $59 billion of revenue shortfalls through 2022 because of the pandemic. According to Cuomo, the shortfall means that services will be cut, and taxes will increase if Congress doesn’t pass another relief package.
U.S. Policy Response
- The Trump administration and House Speaker Pelosi yesterday said they had made enough progress on a new coronavirus relief deal to warrant further talks on Wednesday, and White House Chief of Staff Mark Meadows suggested the two sides are now aiming for an agreement by the weekend. However, that timeline may not be enough to allow a bill to be passed before the November 3 election.
- According to Pelosi, two policy issues remained the biggest sticking points: how much funding to include for state and local governments, and what kind of legal protections to provide businesses and other entities operating during the pandemic.
- If a deal can be reached between the Trump administration and the House, the prospect of a roughly $2 trillion package has galvanized new opposition from Senate Republicans.
- It’s now increasingly unlikely that a deal will get passed through Congress before the election. Investors appear to be taking solace in the apparent seriousness of the ongoing talks and/or the likelihood of a significant new stimulus bill shortly after the polling is done. However, it’s important to remember that action could be held up by a contested election and the need to seat new legislators in January.
Foreign Policy Responses
- With governments around the world now reluctant to reimpose draconian, nationwide economic lockdowns to combat resurgent infections, it’s becoming clear that imposing targeted, localized lockdowns is no picnic, either. One problem is that the local communities targeted for lockdowns can argue they’re being discriminated against. In the U.K., that has prompted the national government to offer compensation for those communities, touching off difficult negotiations and tempting officials to game each other. This week, the government forced the Greater Manchester government to accept the highest level of lockdown after compensation talks fizzled. Today, South Yorkshire in northern England agreed to enter the highest level of lockdown in return for £41 million to support businesses that will have to close and extra council funding to tackle the spread of the virus. All in all, it sounds like a mess that underlines the importance of finding safe and effective vaccines to tackle the pandemic.
Financial Market Responses
- With China recovering from the pandemic much faster than most other countries, the renminbi has appreciated to 6.64 per dollar so far today. That marks the currency’s strongest level in more than two years, which could increase pressure on Beijing to arrest the rapid rise.
European Union-United Kingdom: Seeking to break the logjam in EU-U.K. negotiations for a post-Brexit trade deal, the EU’s top Brexit negotiator, Michel Barnier, offered assurances that a deal was “within reach” and that the EU was still willing to compromise if needed to get it in place before the current temporary deal runs out at the end of the year. Just as important, the British government responded favorably to Barnier’s comment. That keeps alive the chance of a deal that would avoid a “hard Brexit,” which should be positive for British and EU stocks today.
Nagorno-Karabakh: U.S. Secretary of State Pompeo announced that he will host the foreign ministers of Armenia and Azerbaijan in Washington on Friday in an effort to settle the fighting over Azerbaijan’s ethnic-Armenian controlled enclave of Nagorno-Karabakh. The meeting will come two days after the Armenians and Azeris meet today with Russian President Putin in Moscow, but the real focus will probably be on whether the U.S. can put pressure on Turkey to tone down its support for the Azeris.
Nigeria: Several people were killed as Nigerian soldiers opened fire on protestors demonstrating against police brutality in the major oil-producing nation. Because of Nigeria’s large role in the world’s oil supply, any worsening in the violence that might threaten the country’s oil production could put upward pressure on global crude prices.