Daily Comment (September 8, 2020)

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

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with a discussion of the weekend’s big developments in the U.K.-EU trade negotiations.  We also discuss the latest new tensions between the U.S. and China, and, as always, we provide a recap of the latest coronavirus news.

United Kingdom-European Union:  Just ahead of the next U.K.-EU negotiating session regarding a post-Brexit trade deal today, top British negotiator David Frost insisted on Sunday that Britain would not blink on the remaining key stumbling blocks of fishing rights and state aid.  On top of that, Prime Minister Johnson warned yesterday that if a deal isn’t reached by October 15, the U.K. will simply walk away from the negotiations.  Finally, the Financial Times reported over the weekend that the government is preparing to “override” portions of the Brexit agreement that the U.K. and the EU signed just eight months ago.  Specifically, the U.K. government would cease to abide by the provisions in the agreement governing Northern Ireland customs and prohibiting state subsidies to private firms.  That would essentially put the U.K. in the position of breaching a formal pact and violating international law, even as it castigates China for breaching its commitments to the “one nation, two systems” arrangement for Hong Kong, and as it tries to negotiate new trade deals with the U.S. and other countries following its exit from the EU.  As evidence of how dramatic the move is, the permanent secretary of the British government’s legal department even resigned to protest the move.  One wonders whether the British officials involved in the move might have ancestors who assisted in the U.S. government’s breaking of its treaties with American Indian tribes!  In any case, the British posturing is further raising the risk that the interim U.K.-EU trade deal currently in place could soon expire, leading to a sudden rupture in U.K.-EU trade.  As a result, the British pound has depreciated significantly in recent days.

European Union:  European Commission President Ursula von der Leyen said she has chosen Valdis Dombrovskis, the former Latvian prime minister and current EU executive vice president for economic policy, to take on the additional key role of trade policy chief.  Dombrovskis will replace Phil Hogan of Ireland, who was forced to resign the trade position after breaking coronavirus protocols.  As consolation, Ireland’s replacement EU commissioner, Mairead McGuinness, will instead be in charge of financial services and financial stability.

Germany-Russia:  As Russian opposition leader Alexei Navalny came out of the coma doctors had put him into after his recent poisoning, German Chancellor Merkel said she couldn’t rule out including the Russia-Germany Nord Stream 2 gas pipeline in possible sanctions against Russia for the poisoning.

Belarus:  The Coordination Council leading the opposition against President Lukashenko said Maria Kalesnikava and two other members of the panel were kidnapped by unknown people in the center of Minsk.  Eventually, it appears that the three were taken to the Ukrainian border to kick them out of the country, but Kalesnikava tore up her passport to prevent the move.  Her situation is unclear at the moment.  In any case, the bizarre events suggest Lukashenko is cracking down on the political opposition after nearly a month of protests against his own apparently fraudulent reelection.

China:  Seeking to change its reputation for digital spying and theft of intellectual property, the Chinese government today plans to start pushing a new “Global Initiative on Data Security” that calls on all countries to upgrade data security and maintain an open, secure and stable market for information and communication services.  Of special interest to China, the plan would also urge governments to respect other countries’ sovereignty regarding how they handle data—in line with Beijing’s vision of “cyber sovereignty,” whereby countries exercise full control over their own corners of the internet.  The plan would also oppose “mass surveillance against other states,” and call on tech companies not to install “backdoors in their products and services to illegally obtain users’ data, control or manipulate users’ systems and devices,” although those are some of the most worrisome activities that the major democracies say Beijing itself is guilty of.

United States-China:  President Trump said in a Monday press conference that he is considering “decoupling” the U.S. economy from China, and he threatened to block companies that outsource jobs to China from bidding on U.S. government contracts.  Separately, U.S. apparel groups are expecting a Trump administration decision as early as this week, blocking imports of Chinese-made textile and apparel products because they are the products of forced labor in the Xinjiang region of China.

United States:  The main electricity utility serving northern and central California said it has started cutting power to about 172,000 people in 22 counties to reduce wildfire risks. This comes a day after the state narrowly averted rolling blackouts to relieve strain on its electric grid during a heat-wave.

COVID-19:  Official data show confirmed cases have risen to 27,364,931 worldwide, with 893,219 deaths and 18,358,489 recoveries.  In the United States, confirmed cases rose to 6,301,649, with 189,226 deaths and 2,333,551 recoveries.  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 fell to a nearly 12-week low of less than 25,000 yesterday, while the seven-day moving average of new infections declined to just above 40,000.  Reported deaths from COVID-19 remain slightly below 1,000 per day and continue to trend modestly downward.  However, outbreaks associated with college and university re-openings also continue to be a problem.  That has prompted some schools to temporarily revert to online-only classes, raising the specter that owners of student housing properties could face more pain, and that students sent back home will carry the disease along with them.
  • Even though coronavirus infections seem to be moderating, new reporting suggests the crisis to date has worsened the nation’s opioid crisis.  Counties in states spanning the country, from Washington to Arizona and Florida, are reporting rising drug fatalities.
  • International Olympic Committee Vice President John Coates, who heads the IOC’s coordination commission for the Tokyo Olympics, told French news agency AFP on Monday that the Games “will take place with or without COVID,” and Japanese Olympics Minister Seiko Hashimoto insisted the games will be held in 2021 no matter what.

 Economic Impact

  • Oil prices fell to their lowest level in more than two months Tuesday, under pressure from a stalling recovery in demand that has prompted Saudi Arabia to discount its crude exports.  Saudi Arabia’s national oil company, commonly known as Saudi Aramco, cut most of its prices this weekend for crude exports to the U.S., Asia and northwest Europe for October.

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