by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with an update on the Russia-Ukraine war, where Russian forces are now making better gains toward their newly reduced goals.  We next review a range of international and U.S. developments with the potential to affect the financial markets.  We wrap up with the latest news on the coronavirus pandemic.

Russia-Ukraine:  Russian forces continue to implement their latest strategy shift, which involves abandoning their effort to make a major encirclement of Ukrainian forces in the eastern Donbas region.  They are instead completing a series of smaller encirclements.  The strategy shift has allowed them to seize more territory than they did earlier in May, but their progress is still relatively minor, and the tough, costly urban combat would likely slow them if they try to take the city of Severodonetsk.  Meanwhile, we continue to see increased complaints about the war within Russia, even by nationalist politicians who generally support President Putin.

• The Treasury Department today will end its sanction exemption that allows U.S. banks and investors to process and receive payments on existing Russian bonds.  The move puts Russia on a path toward defaulting on its foreign debts this summer and deepening the country’s economic isolation after its invasion of Ukraine.
• Amid fears Russia will continue its efforts to destabilize its enemies and help its friends in regional governments, Moldova has detained pro-Russian Former President Igor Dodon on charges of treason, corruption, and illicit political financing.

United Kingdom: Prime Minister Johnson has come under new political pressure today as an official investigation found he must “bear responsibility” for a culture in Downing Street during the pandemic that allowed the repeated breaking of COVID-19 rules.  However, the long-anticipated report was not as critical of him as some had expected, increasing the chance that he could survive what has been one of his most dangerous political scandals.

Saudi Arabia:  Finance Minister Al-Jadaan said the kingdom will use its huge windfall from today’s high oil prices to top up its reserves, fund more domestic development projects, and invest more into its massive sovereign wealth fund.

• The kingdom posted a $15.3 billion budget surplus in the first quarter, putting it on track to meet its goal of a $24.0 billion surplus for the entire year.
• If Saudi Arabia succeeds in posting a surplus this year, it would be the kingdom’s first since 2013.

Pakistan:  Foreign Minister Bilawal Bhutto Zardari said he wants to negotiate a deal with the IMF to resume lending under a $6 billion loan program agreed upon in 2019 but in limbo since a dispute with the previous government over energy subsidies.  The renewed lending would be used to help replenish the country’s foreign reserves and deal with the surge in food and energy prices touched off by the war in Ukraine.

United States:  As the Federal Reserve continues to tighten monetary policy, driving interest rates higher, top U.S. mortgage lenders are reporting a sudden plunge in refinancing demand.  Firms ranging from Wells Fargo (WFC, $43.29) to Rocket (RKT, $8.75) are laying off staff, selling servicing rights, and otherwise trying to survive.

COVID-19:  Official data show confirmed cases have risen to  526,808,553 worldwide, with 6,280,679 deaths.  The countries currently reporting the highest rates of new infections include the U.S., Germany, Taiwan, and Australia.  (For an interactive chart that allows you to compare cases and deaths among countries, scaled by population, click here.)  In the U.S., confirmed cases rose to 83,505,455, with 1,002,743 deaths.  In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,001,614, equal to 66.6% of the total population.

• As yet another wave of infections seems to be hitting the U.S., newly reported cases are on the rise, again.  The seven-day average of newly reported cases has now reached 108,082, up 40% from two weeks ago.  However, hospitalization and death rates are still rising much more slowly.  The seven-day average of people hospitalized with confirmed or suspected COVID-19 in the U.S. came in at 25,383 yesterday, up 30% from two weeks earlier.  New COVID-19 deaths average just 331 per day, down 10% from two weeks earlier.
• The chief executive of Pfizer (PFE, $53.41) has warned that the stage is set for “constant” waves of infections because of growing complacency about the virus, politicization of the government response, and waning immunity from infections and vaccinations.
• In China, the government is cracking down even harder on students at elite universities who have been protesting strict pandemic restrictions.  The action raises the risk of wider political protests and instability in the country.
• To help cushion the economy from President Xi’s super-strict “zero- COVID” strategy, the government has released a 33-point stimulus package.  The measures are centered on greater financial relief for more industries via tax refunds, tax cuts, and fee reductions.
  • The government will also support banks by allowing borrowers of various types of loans to postpone principal and interest repayments until the end of this year.  Bank lending quotas for small and micro-sized businesses will be doubled.
  • The additional measures will bring the government’s total planned tax refunds and reductions to 2.64 trillion yuan (US$396 billion) for 2022.

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