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

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with the latest coronavirus news.  Some of that news is good, such as the first U.S. vaccinations and signs that at least a trimmed down pandemic relief bill is in the offing again.  However, some of the news is worrisome, including the continued rise in infections and hospitalizations, as well as a possible new strain of the virus in Britain.  We then move to the latest U.S. presidential transition news, reports of new tech industry regulations, and various other news items from around the world that could impact the financial markets today.

COVID-19:  Official data show confirmed cases have risen to 72,991,941 worldwide, with 1,624,161 deaths.  In the United States, confirmed cases rose to 16,520,408 with 300,494 deaths.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S. infections topped 193,000 yesterday, falling slightly short of the record levels reached in early December.  Hospitalizations related to the virus hit yet another record of 110,549, with the number in intensive care also hitting a record of 21,456.  In contrast, new deaths came in only a bit above 1,400, which was significantly better than the seven-day moving average of about 2,400.
  • The autumn/winter resurgence continues to push many state and local governments to tighten economic lockdowns.
  • In Europe, many countries are also tightening restrictions.  The Dutch government imposed its strictest lockdown since the start of the pandemic; it closed all stores except for food and other essentials, in addition to consumer services and public venues including restaurants, hairdressers, and theaters. Most secondary education will move online.  In Germany, some economists are warning the latest clampdown could lead to a double-dip recession.
• According to the federal government, 55 sites nationwide received shipments of the new vaccine from Pfizer (PFE, 39.21) and BioNTech (BNTX, 108.27) around noon on Monday, and plans remain on track for a total of 636 locations to receive vaccines by Wednesday.
  • An additional 581 sites should receive shipments between Thursday and Sunday, completing the distribution of an initial 2.9 million doses.
  • According to new polling by Axios/Ipsos, the share of Americans who say they’ll get the COVID-19 vaccine as soon as it’s available has doubled since September, with more than one in four now putting their hands up.
• On a less positive note, British doctors say rolling out the Pfizer/BioNTech vaccine beyond hospitals will take longer than anticipated because of logistical challenges and complications thrown up by news in the U.K. of allergic reactions after the injection.  Following two severe allergic reactions on December 8, the first day of the U.K. vaccination campaign, doctors were told to monitor patients for 15 minutes after each injection.
• Also in the U.K., Health Secretary Matt Hancock told the House of Commons yesterday that a “new variant” of coronavirus has been identified in the country and could be causing the virus to spread faster in southern England.  While that news is scary, Hancock insisted that, “There is currently nothing to suggest that this variant is more likely to cause serious disease, and the latest clinical advice is that it is highly unlikely that this mutation would fail to respond to a vaccine.”  Let’s hope he’s right.
• The FDA today will release data on the effectiveness of the new vaccine being developed by Moderna (MRNA, 155.07).  That data is expected to set the vaccine up to be approved for emergency use later this week.
• New figures show that during the pandemic to date, state-run nursing homes for veterans have had some of the highest concentrations of infections and deaths.  An analysis by the Wall Street Journal found at least two such facilities where approximately one-third of the residents were infected and died.

 Economic Impacts

• In Japan, new polling shows a majority of Japanese people oppose holding the coronavirus-postponed Tokyo 2020 Olympics next year, favoring a further delay or outright cancellation of the massive event.  The polling, by national broadcaster NHK, found that just 27% of respondents support holding the games next year, with 32% backing cancellation and 31% favoring a further postponement due to coronavirus risks.

 U.S. Policy Response

• Republican and Democratic legislators working to craft a $908 billion pandemic relief bill failed to reach a deal on COVID-19 liability protections, increasing the chances that Congress will need to narrow the scope of any relief deal in a year-end package.
  • The group instead offered a $748 billion bill that includes only less-controversial items like an extension of unemployment insurance and funding for schools, vaccine distribution, and small businesses.
  • The substitute bill would exclude both the liability protection and aid to state and local governments, but it would also be much more likely to be passed into law.  Since even the smaller package would help support demand over the winter months and the current resurgence of infections, further progress on the bill would probably be supportive of equities.

 U.S. Presidential Transition:  The Electoral College met in the various state capitals and the District of Columbia, and gave Democratic presidential candidate Joe Biden a total of at least 302 votes, exceeding the 270 votes needed to win.

• The next major step in the process of electing the president comes on January 6, when Vice President Mike Pence will preside over a joint session of Congress in which the Electoral College votes from each state will be formally counted and an outcome declared.
• With the Electoral College action yesterday, several senior Republican leaders finally acknowledged that Biden will become the next president in late January.  In the meantime, however, some supporters of President Trump plan to continue legal action to overturn the election.  Given some Republicans’ aggressive court suits to impose blanket invalidations of Democratic-leaning votes, it probably can’t be ruled out that there will be some discussion of disrupting the January 6 procedures.  That disruption could conceivably create some market volatility over the next few weeks.  However, it is more likely that electoral disputes will continue to dissipate, and President-elect Biden will take office as scheduled in late January.

Technology Industry Regulation:  The U.S., the United Kingdom, and the European Union have all taken new steps adding to the regulatory risks facing major U.S. technology firms.  Those rising regulatory risks have probably contributed to the technology sector’s volatility in recent months, and the new measures promise that investors will remain concerned about new restrictions imposed on the industry.  The new steps include:

• United States.  The Federal Trade Commission ordered nine big social media and internet companies to provide a litany of data about their operations as part of a wide-ranging study into how they track users’ online activities and how they use that data.  Coupled with recent antitrust actions in the U.S. and Europe, the order illustrates the growing regulatory risk facing major U.S. technology firms.  This has probably contributed to their volatility in recent months.
• United Kingdom.  The British government today published its long-awaited proposal for online safety legislation, which would target major technology companies with multibillion-pound fines if they fail to rapidly remove illegal and harmful content from their platforms.  The rules would set out new “duty of care” requirements and require the companies to “remove and limit the spread of illegal content,” including child sexual abuse and terrorist material.
• European Union.  The European Commission today will unveil two draft laws that threaten to break up Big Tech companies if they repeatedly engage in anti-competitive behavior.  The proposed “Digital Markets Act” will aim at tackling unfair competition in the sector, while the “Digital Services Act” will force tech companies to take more responsibility for illegal behavior on their platforms.

• The proposals envision draconian punishments for firms that break the rules, ranging from massive fines to forced breakup for repeat offenders.
• After the proposals are published, they will have to be voted on by the European parliament, but there is no timetable for when they will come into force.

U.S. Monetary Policy:  The Federal Reserve today begins its final policy meeting of 2020, with any policy adjustments and new economic forecasts to be published tomorrow.  The policymakers are widely expected to extend the time frame for their current program of debt purchases by linking them to certain economic metrics in the recovery.  Against the backdrop of rising Treasury yields and a flood of new, longer-dated debt from the Treasury Department, the policymakers are also coming under increased pressure to shift the bulk of its bond-buying to longer maturities, i.e., to adopt yield curve control.

China Economic Performance:  China’s economic activity extended its momentum in November with an across-the-board recovery.  Indicators all accelerated including industrial production, investment, consumer spending, and job growth, and unemployment fell (see data tables below).  Industrial output alone was up 7.0% year-over-year, accelerating from a gain of 6.9% in October.

China Regulatory Policy:  The China Securities Regulatory Commission announced it was temporarily freezing the license of Golden Credit Rating, one of the country’s top debt-rating firms, and had forbidden the agency from taking on new business for three months.  The move, which comes after a former firm executive was accused of taking “massive” bribes, will further sour investors on Chinese credit markets and debt levels.  Indeed, the news about Golden Credit comes as Shandong Ruyi, China’s largest textile manufacturer, appeared set to default on a second bond in as many days.

China-Australia Trade:  The Australian government has asked Beijing to clarify whether it has formally banned Australian coal following Chinese state media reports that the country’s top economic advisory body allowed power stations to import coal without clearance restrictions, with the exception of coal from Australia.  If true, the Chinese move would represent a further effort to punish Australia for its call to investigate China’s role at the start of the coronavirus pandemic.

Russia:  A new joint investigation between Bellingcat and several media outlets has revealed evidence showing that the recent poisoning of Russian opposition leader Alexei Navalny was carried out by Russia’s Federal Security Service (FSB).

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