Daily Comment (September 8, 2021)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Today’s Comment begins with a wide range of developments regarding U.S. monetary, fiscal, and regulatory policy.  We then move to global technology company regulation and other key foreign developments that could drive the financial markets today.  We conclude with the latest news related to the coronavirus pandemic.

U.S. Monetary Policy:  St. Louis FRB President Bullard yesterday said the Fed should soon dial back its asset purchase program despite the big slowdown in payroll growth reported last week.  According to Bullard, “There is plenty of demand for workers, and there are more job openings than there are unemployed workers . . . The big picture is that the taper will get going this year and will end sometime by the first half of next year.”

  • Bullard’s statement illustrates how Chair Powell is coming under increasing pressure to pull back the Fed’s massive pandemic stimulus policies as the economy continues to recover.
  • In fact, our analysis increasingly convinces us that the current economic recovery is more like the strong pre-1990 recoveries than the long, slow, drawn-out recoveries after 1990.  If so, monetary policy probably should be normalized more quickly than Powell intends.  By deftly separating the issue of near-term tapering from rate hikes in the future, Powell’s Jackson Hole speech may give him the leeway to thread the needle by launching a tapering program somewhat earlier than he originally planned but still pushing rate hikes farther out into the future.

U.S. Fiscal Policy:  President Biden has asked Congress for $30 billion in extra funding to tackle the impact of the hurricanes, floods, and wildfires that hit the U.S. over the past 18 months. About $10 billion would cover the cost of the government’s response to Hurricane Ida, while $14 billion would cover the costs of earlier extreme weather events.  In addition to the disaster relief, the White House added it would also need $6.4 billion in funding to aid Afghan refugees.  The request will likely further complicate the passage of Biden’s proposed programs related to infrastructure, poverty, and climate change.

U.S. Cryptocurrency Regulation:  Coinbase (COIN, $266.81) said the SEC has threatened to sue the company if it launches its proposed digital asset lending product called Lend.  The cryptocurrency trading platform also said the SEC has issued subpoenas requiring it to provide more information on the product, which it considers a security.  At the same time, Coinbase and other companies have complained that the SEC isn’t explaining exactly why it sees their products as securities subject to regulation.  In any case, the situation highlights the growing regulatory scrutiny of cryptocurrencies and the bureaucratic struggle to be their primary regulator.

Global Technology Industry:  At a parliamentary forum this week, South Korean lawmakers warned large technology companies that they should be careful not to abuse their market dominance in the pursuit of profits.  Not only did the warning spark a sharp drop in the shares of South Korea’s top social media companies, but it also suggests that other countries may follow Beijing’s lead in cracking down on the power of big tech firms.  As we have mentioned before, we see a significant rise in antimonopoly and other regulatory risks targeting technology companies worldwide.

United States-China:  The U.S. Navy today conducted a freedom-of-navigation operation by sailing a warship, the guided-missile destroyer USS Benfold, near a Chinese-controlled island in the disputed South China Sea.  It was the first such operation since Beijing began implementing a law that requires foreign vessels to give notice before entering waters it claims.  As might be expected, China’s military lambasted the operation as the latest proof of the United States’ “militarization of the South China Sea,” adding that it had tracked the vessel and warned it off.

Mexico:  A powerful earthquake registering 7.1 on the Richter scale struck southeast of Acapulco last night, causing at least one death and some property damage.  However, reports so far suggest the temblor has caused no major damage.

Brazil:  More than 100,000 Brazilians staged street rallies yesterday in a mass show of support for right-wing President Bolsonaro, ahead of elections next year where he will face a surging leftist challenger.  Despite Bolsonaro’s continued drop in preference polls as Brazil battles the coronavirus pandemic and the president fends off corruption charges, his supporters gathered in the streets of São Paulo and more than 100 other cities to disparage Bolsonaro’s political opponents, communists, Congress, and the courts.

Afghanistan:  The Taliban finally revealed a new government in a hastily called nighttime press conference.  The Taliban’s supreme leader, Hibatullah Akhundzada, retains overall oversight of state affairs; the new prime minister will be Mullah Hassan Akhund, who served as foreign minister in the previous Islamic Emirate until the U.S. invasion in 2001.

  • In an appointment that would complicate any recognition of the new government by Western nations, Sirajuddin Haqqani, designated a global terrorist by the U.S. because of close links between al Qaeda and the Haqqani network that he heads, was named minister of interior, with oversight of Afghanistan’s police and internal security.
  • The new government includes no women or members of the Shiite minority, despite the Taliban’s repeated assurances to foreign governments and fellow Afghans that they would establish an inclusive government that represents all parts of the Afghan society.

COVID-19:  Official data show confirmed cases have risen to 222,042,024 worldwide, with 4,588,950 deaths.  In the United States, confirmed cases rose to 40,282,910, with 650,691 deaths.  Vaccine doses delivered in the U.S. now total 450,122,155, while the number of people who have received at least their first shot totals 207,589,611.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.


 Economic and Financial Market Impacts

  • In a sign that the Delta variant of COVID-19 is curtailing previously strong demand for restaurant, salon, and other in-person service positions, postings on job-search site Indeed.com began to plateau in August.
    • According to the company, postings were up about 39% at the end of August from February 2020, ahead of the pandemic.  However, that was only a modest gain from the comparable week of July, when postings were up 37% from February 2020.
    • The August gain was largely driven by increased demand for jobs that can be done from home, such as software development. Postings for childcare fell, and openings in construction and at restaurants rose only slightly.
  • Despite the apparent plateau in U.S. hiring in late summer, the overall economic recovery continues.  Commodity markets are nevertheless showing a wide disparity in performance due to unusual factors like policy changes in China and global supply disruptions.

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