Daily Comment (September 10, 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 higher open this morning. Today’s report begins with a discussion of the call between Presidents Joe Biden and Xi Jinping. International news is up next followed by U.S. economics and policy news, including details about Treasury Secretary Yellen’s warning that the debt ceiling could pose a threat to financial stability.  China news follows, and we end the report with our pandemic coverage.

They Finally Speak: Last night, President Biden called Chinese President Xi Jinping in order to de-escalate tension between the two countries. This was the first call between the two leaders since they spoke on President Biden’s inauguration. Biden made the call after discussions among aides were unfruitful, believing that they would be able to make more progress if they spoke directly. Although details have not been released, the call is believed to have set “guardrails” for future policymaking.

In our view, Xi has been trying to make it appear that China is in the driver’s seat in negotiations with the U.S. as opposed to the other way around. This was made evident by China’s deliberate efforts to set up meetings between U.S. aides and Chinese officials in more junior roles. Now that Biden has made this call to Xi, we suspect these games may finally end. So far, the market has responded positively as it seems the call has mediated concerns over an imminent split between the two countries. After Xi reportedly said that China-U.S. ties should get back on the right track, the yuan strengthened and Chinese equities rallied.

International news: 

This is the first time a national government has established rules to limit social media firms’ ability to remove content from their own platforms. However, we suspect it will not be the last. Countries around the world have become more hostile toward social media companies as they believe these platforms could stir civil unrest and hinder their ability to communicate with constituents. As a result, social media companies will likely come under more regulatory scrutiny in the coming years.

  • In a joint news conference, Russian President Vladimir Putin and Belarusian President Aleksandr Lukashenko pledged to build closer ties. The announcement comes as Belarus struggles to deal with the blowback after it forced a plane to land prematurely in order for authorities to arrest an activist journalist. The agreement has led to speculation that the growing integration between the two countries will lead to an eventual merger.
  • On Thursday, the first international commercial flight took off from Afghanistan following U.S. troop withdrawal.
  • European debt has made its way back into the spotlight in German politics. On Thursday, the Christian Democratic Union (CDU) party accused Olaf Scholz, the frontrunner to succeed Angela Merkel, of trying to force German taxpayers to pay for the debt of other European countries. Disputes over Germany’s role as lender of last resort in the currency bloc caused major headaches for Merkel during the European Sovereign Debt Crisis. It appears that disagreements over paying for pandemic debt could emerge as another thorny issue for her successor and could have implications for the euro.
  • Calls continue to mount for regulation of cryptocurrencies. A senior official at the Bank for International Settlement, an international financial institution owned by central banks, has sounded the alarm over the growing threat these digital assets pose to banks. He urged policymakers to hasten their response to the cryptocurrency threat and develop a digital asset backed by national policymakers. The warning comes amidst growing fear that crypto has made its way into the global financial system and could lead to another financial crisis.

 Economics and policy:

  • The presidents of the Federal Reserve Banks of Boston and Dallas, Eric Rosengren and Robert Kaplan, respectively, pledged to liquidate their individual stock holdings by September 30. The move comes as recent financial disclosures showed that the two Fed officials had traded at the same time that the central bank implemented extensive monetary easing. They have vowed to not trade stocks throughout the remainder of their tenure at the Fed. Although the Fed officials were allowed to purchase stocks at this time, the optics of doing so has exposed the central bank to additional scrutiny and could provide fodder for those looking to limit its influence.
  • Treasury Secretary Janet Yellen continued to push Congress to raise the debt ceiling on Thursday. Yellen warned that failure to do so could have implications on financial stability. In the past, a lack of risk-free assets has led financial institutions to invest in riskier assets. Although the scarcity of risk-free assets could curtail lending, the standing reverse repo facilities at the Fed should be enough of a backstop to prevent a financial crisis.
  • Several major airlines have attributed the decline in bookings to a surge in COVID-19 cases.
  • Walmart (WMT, $146.42) has decided to end its quarterly bonus in order to fund higher wages. The move shows how some companies may be looking to fund higher wages without having to increase prices.


  • China has announced that it will release some of its oil reserves in order to alleviate the price pressures in commodities.
  • Fitch Ratings angered Taiwan and confused traders when it referred to the island as “Taiwan, China” in a report. Initially, traders believed the report was referring to both Taiwan and China but later realized that it was referring solely to Taiwan.
  • A typhoon in China threatens two of the country’s main shipping ports. So far, the ports remain open, although they have asked ships to adjust their navigation plans to the storm. Complications at ports in Asia have been a major source of bottlenecks for supply chains, thus port closings could contribute to a slowdown in the production of goods.

COVID-19:  The number of reported cases is 223,204,222 with 4,606,035 fatalities.  In the U.S., there are 40,602,892 confirmed cases with 654,598 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 452,781,195 doses of the vaccine have been distributed with 377,622,065 doses injected.  The number receiving at least one dose is 208,305,270, while the number of second doses, which would grant the highest level of immunity, is 177,433,044.  The FT has a page on global vaccine distribution.

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