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

[Posted: 9:30 AM EST] | PDF

Today’s Comment opens with key U.S. developments that could have an impact on the financial markets today, including news of a new government crackdown on crime at big companies.  We next cover a range of international news, including the appointment of a new Japanese foreign minister who is surprisingly soft on China.  We close with the latest news on the coronavirus pandemic.

U.S. Regulatory Policy:  An official at the Justice Department yesterday warned that the administration would launch a crackdown on corporate crime in the coming weeks, with a focus on companies that have violated past deferred prosecution agreements or have failed to invest in legal compliance systems.  The official warned that the crackdown, which is separate from the administration’s intent to ramp up antitrust enforcement, would touch some of the biggest U.S. companies.  The statement highlights our concern that U.S. firms are likely facing much greater regulatory risks than they have in many years.

U.S. Bond Market:  A federal working group looking into the U.S. Treasury market’s recent liquidity problems issued a progress report but was criticized for failing to go beyond familiar solutions such as increased transparency and oversight and central clearing.  The report also stopped short of making any policy recommendations and did not suggest a timeline for the working group’s analysis to be completed.

U.S. Inflation:  Yet another basic commodity is getting attention for its rapid price increases.  Prices for ethanol, the corn-based fuel that is a common additive to gasoline, have risen about 50% year to date, with the near-term contract trading at about $2.20 a gallon on the Chicago Board of Trade.  The jump comes as demand rebounds strongly from the coronavirus pandemic, and supply remains constrained.

Belarus-European Union:  As troops and border guards pushed back thousands of primarily Middle Eastern migrants trying to enter Poland from Belarus, the EU accused Belarussian President Lukashenko of acting like a “gangster” in instigating the crisis.  EU officials believe Lukashenko orchestrated the mass migration push to punish the EU for the sanctions it has imposed on Belarus for its political repression.

Japan-China:  Japan’s new prime minister, Fumio Kishida, has appointed a foreign minister who is unexpectedly dovish on China.  The new foreign minister will be Yoshimasa Hayashi, a Harvard-educated, English-speaking official, who previously served as both minister of defense and minister of education.  Like Kishida, he is also a member of the ruling party’s most liberal and pacifist faction, suggesting that Kishida has been emboldened by his party’s win in the late October parliamentary elections.  Therefore, he may feel less need to bend to the conservative factions in the party.  All the same, the conservatives remain dominant in the party and will probably pressure Hayashi to maintain a tough stance on China and continue bolstering Japan’s alliance with the U.S.

China-Taiwan:  In its biannual military strategy report, Taiwan’s defense department said it would try to deter China from taking the island by force primarily by adopting “asymmetric” tactics like sinking China’s large amphibious landing ships with multitudes of small, cheap, fast attack boats.  The strategy calls for inflicting maximum damage on any Chinese invasion force while its troops are embarking on their ships or airplanes and when they are crossing the Taiwan Strait, the times they would be most vulnerable.

• The strategy of attacking Chinese forces during their embarkation and cross-strait transit phase may make sense, but we have seen little evidence that Taiwan’s military is sufficiently aggressive or skilled in long-distance strikes to pull it off.
• In reality, Taiwan’s military would probably require a massive transformation before it could hold off a Chinese invasion for any significant time.
• Besides that, many of China’s options for taking control of Taiwan center on tactics that would be much smaller in scale and harder to defend against, such as blockading or seizing the many Taiwanese islands that lie literally just a few miles off China’s coast.  One example is the Taiwanese island of Kinmen, from which the Chinese city of Xiamen is clearly visible (see photo below).

A view of the Chinese city of Xiamen, Fujian Province, from the Taiwanese island of Kinmen (Source: NPR).

China:  The October Producer Price Index was up a whopping 13.5% year-over-year, far worse than both the expected increase and the rise in the year through September.  The gain in October was the biggest since 1995.  The country’s statistics bureau ascribed the price jump mostly to higher costs for domestic energy and raw materials.  Even though the government can keep a tight lid on China’s consumer prices (the Consumer Price Index was up just 1.5% year-over-year), the big hike in basic materials will surely feed into concerns about higher production costs in China boosting inflation in other countries.

India:  An acute shortage of fertilizers is threatening to disrupt the winter planting season, stoking unrest among the country’s politically important farmers ahead of a series of crucial state elections next year.

COVID-19:  Official data show confirmed cases have risen to 251,054,359 worldwide, with 5,068,233 deaths.  In the United States, confirmed cases rose to 46,696,230, with 757,417 deaths.  Vaccine doses delivered in the U.S. now total 536,665,505, while the number of people who have received at least their first shot totals 224,257,467.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

• According to the latest CDC data, 67.5% of the U.S. population has now received at least one dose of a vaccine, and 58.5% of the population is fully vaccinated.
• Pfizer (PFE, $47.30) and partner BioNTech (BNTX, $226.37) asked U.S. health regulators to expand the authorization of their booster to people as young as 18 years old.  If the regulators approve, the extra doses could provide millions of people with another layer of security as winter drives many indoors where the risk of transmission is higher.
  • Currently, the vaccine booster from Pfizer and BioNTech is approved only for adults who are 65 years and older or are at risk of severe disease and death, including a consequence of their jobs or where they live.
  • In contrast, the vaccine booster shots produced by Moderna (MRNA, $236.85) and Johnson & Johnson (JNJ, $162.51) have already been approved.
• In France, President Macron announced that residents over 65 would need booster jabs if they want to eat out or make long-distance journeys, beginning next month.  The move suggests all adults will eventually require a third injection against the virus if they want to continue to live normally.
• In China, where the government continues to enforce its strict “zero COVID” policy, the  Shanghai Marathon was postponed, just as similar races have been postponed in Wuhan, Shijiazhuang, and Beijing.

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

[Posted: 9:30 AM EST] | PDF

In today’s Comment, we open with a range of U.S. news, including new details on a corporate tax hike in the Democrats’ proposed health, education, and climate bill.  The U.S. news also includes the latest opening on the Federal Reserve’s board that President Biden will get to fill, as well as the Fed’s most recent Financial Stability Report.  We next turn to several foreign news items.  We wrap up with the latest developments related to the coronavirus pandemic.

U.S. Fiscal Policy:  Now that President Biden’s “hard” infrastructure program has passed Congress, there is increased scrutiny regarding the promised health, education, and climate bill.  One tax provision that hasn’t gotten much attention to date is a proposal to tighten limits on the amount of interest expense that multinational companies can deduct from their U.S. taxes each year, based on where they record profits.

• To boost tax collections, the idea would be to allow interest deductions in the U.S. only to the extent that a company is doing business and generating profits here.
• Illustrating the importance of the issue, some three dozen major companies sent a joint letter to lawmakers in late October asking that the provision be dropped.

U.S. Monetary Policy:  The Fed said Vice Chairman for Supervision Quarles will resign around year’s end, opening yet another seat on the seven-member Board of Governors for President Biden to fill.

• Biden is close to announcing whether or not he will nominate Chair Powell for a second term.  Renominating Powell, a Republican, would likely be positive for the markets, but it would also likely spawn pushback from Democrats in Congress.
• If Biden could name Democrats to the other open seats, it might reduce the political heat he would take from his own party, making it easier to renominate Powell.

U.S. Financial System Risks:  In its semiannual Financial Stability Report, the Fed said a new resurgence of the coronavirus pandemic is one of the biggest risks to the U.S. financial system, especially if there was another wave of mass business closings and further supply chain disruptions that could drive down asset prices.  Among other risks, it also said stresses in the Chinese financial system have the potential to spill over into the U.S.

• Nevertheless, the report said many parts of the financial system appear resilient.
• Banks remain well capitalized, and key measures of vulnerability from business and household debt have largely returned to pre-pandemic levels.

U.S. Housing Market:  According to securities advisor Green Street, built-to-rent single-family homes now make up the hottest sector of the U.S. housing market.  In the private market, the sector is now offering expected risk-adjusted returns of approximately 8% versus about 6% for all property sectors.  As a result, many traditional, publicly traded homebuilders have made building homes for rent a major part of their business.

United States-China:  U.S. military planners are testing Israel’s “Iron Dome” anti-missile system as one way to defend Guam against a Chinese attack.  The system would likely be most appropriate against China’s slower-flying cruise missiles, but other systems still need to be developed to counter weapons such as hypersonic cruise missiles and longer-range ballistic missiles.

China Debt Crisis:  Real estate developer Kaisa Group Holdings (1638 HK, HKD, 1.01), which last week admitted that it missed payments on wealth management products that it guaranteed, issued a statement late yesterday asking investors for “more time and patience” as it rushes to raise cash from asset sales to meet its obligations.  Kaisa isn’t nearly as big as the teetering Evergrande (EGRNY, USD, 7.33), but its troubles are significant because they suggest China’s developer debt turmoil is spreading to higher-rated businesses.

• Meanwhile, Fitch cut Kaisa’s credit rating further to CCC- from CCC+, two weeks after cutting the rating two notches from B+.
• Separately, the government’s Development Research Center met with a range of mainland property developers and financial institutions to address the crisis,

Japan:  An advisory body Prime Minister Kishida set up to flesh out his “New Capitalism” program recommended fresh fiscal stimulus to help the economy get over the impact of the coronavirus pandemic and improved financial incentives for companies to hike wages.  The panel also recommended subsidies for the buildout of broadband internet in rural areas and support for companies building advanced semiconductor factories.

• The economic package will total over ¥30 trillion (about $265 billion) in spending.
• It is expected to be approved by the Cabinet in the next two weeks.

Russia-European Union:  Data show Russian natural gas flows to Germany have increased modestly in recent days, prompting a slight pullback in prices.  However, the increase is still limited.  Europe’s massive gas crunch and high prices still show little sign of being resolved.

Poland-Belarus:  Poland has deployed thousands of troops, border guards, and police to its border with Belarus to stop thousands of mostly Middle Eastern migrants trying to enter the country on their way into the EU.  Poland accuses the Belarusian government of instigating the crisis in retaliation for EU sanctions on the country over its political repression.

COVID-19:  Official data show confirmed cases have risen to 250,511,488 worldwide, with 5,059,656 deaths.  In the United States, confirmed cases rose to 46,614,298, with 755,724 deaths.  Vaccine doses delivered in the U.S. now total 534,086,695, while the number of people who have received at least their first shot totals 223,944,369.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• According to the latest CDC data, 67.5% of the U.S. population has now received at least one dose of a vaccine, and 58.4% of the population is fully vaccinated.
• Infections are rising again in Europe, as colder temperatures and the fading of vaccine-induced immunity drive renewed caseloads.
  • Germany and some smaller countries in Central and Eastern Europe are experiencing large increases.
  • Germany registered over 37,000 new cases on Friday, the country’s highest daily number on record.
• Over the weekend, Russia reported a record daily total of 41,335 new cases, as well as 1,180 deaths.
• While China and Hong Kong maintain their strict “zero COVID” policies, other Asian states are starting to relax their restrictions.  They’re still generally more strict than Western countries, which are largely learning to live with the virus, so the Asian states are essentially adopting a “third way,” a slower route that is midway between harsh restrictions and something resembling pre-pandemic policies.

 Economic and Financial Market Impacts

• One of the major impacts of the pandemic has been the huge wave of “COVID retirees” who left the labor market and helped touch off the current labor shortage.  Some of those retirees, particularly the more highly educated, quit working because the liquidity-fueled surge in the financial markets significantly boosted their retirement portfolios.  However, it now appears that the bigger share of retirees were relatively less educated seniors who presumably were more at risk if they caught the disease.
• The post-pandemic inflation surge has driven real interest rates negative or more negative throughout the world, essentially supercharging low policy rates and helping drive risk assets higher.

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

[Posted: 9:30 AM EST] | PDF

Good morning and happy Monday!  It’s lighter in the morning but will be darker earlier.  Risk markets are modestly higher this morning.  Tesla (TSLA, USD, 1222.09) is making news (and might be lowering the major indices) after Elon Musk had a Twitter (TWTR, USD, 53.15) poll asking the “public” if he should sell 10% of his Tesla stock and pay capital gains taxes.  The public overwhelmingly told him to do so, and shares are lower this morning.  We also note oil prices have dipped on reports the White House will take steps to increase supplies.  We expect the SPR to be aggressively tapped.  We will have more to say on this in Thursday’s Weekly Energy Update.  Our regular coverage begins with the international roundup.  Up next is economics and policy; the infrastructure bill passed.  China and crypto news follow, and we close with the pandemic update.

International roundup:  Russia is getting active, and Iraq’s PM survives a drone attack.

• Recently, we commented on Russia’s increasing troop strength on the Ukraine frontier. It’s apparently serious enough that the CIA Director is going to Moscow to warn the Kremlin about its actions.
• Russia has also been active on its eastern end. It has been conducting naval exercises in the Sea of Japan and reportedly threatened the USS Chafee, a guided-missile destroyer.  The Pentagon has denied that the Chafee was in Russian waters.
• Although Russia and China have been making highly public shows of their military cooperation, one potential point of conflict is in Central Asia. China has extended its influence into the region, in part to protect its western border from Islamic influence and in part to gain access to the region’s mineral wealth.  Russia views this area as its sphere of influence and is acting to counter China’s actions.  We note that nations in Central Asia are taking steps to control social media, following the lead of both China and Russia.
• Iraqi PM Mustafa al-Kadhimi avoided injury from a brazen drone attack on the “green zone,” an area set up by the U.S. for critical government operations. It is considered to be highly secure, so the attack is symbolic because it shows that one isn’t safe even in the green zone.  Six security officers were wounded in the attack.  Governments around the world are condemning the act.  We note the U.S. described the incident as a “terrorist attack” while the EU avoided the term.  So far, no group has taken responsibility for the incident.  However, recent elections have elevated Moqtada al-Sadr’s political group, which is anti-Iranian.  Thus, it’s highly possible the attack was backed by Tehran; this would account for the EU’s stance.  The EU tends to avoid upsetting Tehran.
• Nicaragua held elections yesterday, but due to aggressive suppression of the opposition, Daniel Ortega is all but guaranteed victory.
• Sudan recently experienced a coup; protests against the junta continue.
• Argentina will go to the polls for midterm elections next weekend, and polls suggest the ruling Peronists are going to take a drubbing. There are growing concerns that the government will default on obligations because of the IMF.

Economics and policy:  Infrastructure passes.

• The infrastructure package passed the House late Friday. Although six progressives voted against the measure, enough Republicans supported it to ensure passage.  The package has all sorts of spending over the next decade and is a win for the White House.  Overall, though, the net effect on the economy is expected to be modest.  It remains to be seen if the budget will pass in the aftermath.  The fact that six progressive Democrats voted against the measure could mean that moderates may not pass the current bill.  We suspect the progressives knew passage of the infrastructure bill was settled, and thus, their opposition was mostly grandstanding.  We will be watching in the coming weeks to see how the budget bill goes.
• President Biden reportedly met with Chair Powell as part of the latter’s renomination campaign. We think odds favor Powell’s reappointment, but there is still a chance Biden could try to put his own Fed Chair in place.  Biden is facing pressure from left-wing populists to appoint Lael Brainard.  In practical terms, there isn’t much policy difference between the two.  They are both reliably dovish, although Brainard would likely support expanded regulations on financial firms.  This vote is turning into a political morass for the president.  Reappointing Powell can get through the Senate; Brainard might not make it through.  Financial markets, already at high valuations, won’t take a rejection of Powell lightly.
• Inflation is becoming a hot-button issue in the U.S. It is already becoming a topic for next year’s midterms.  It’s not just a U.S. issue.  Asian beef buyers are facing sticker shock as disease and labor issues reduce supplies.  Eurozone CPI is up to 4.1%, and ECB President Legarde is facing increasing pressure within the central bank to do something about it.  Polls suggest consumers are not pleased with rising prices.  Major European firms are warning that additional price increases are coming.
• Supply chain disruptions are a major cause of rising prices. A case study of the paint and coating industry highlights a delicate supply chain that was vulnerable to disruption.  When something as mundane as paint has a complicated supply structure, it highlights that these current dislocations probably won’t be solved soon.
• One factor that has affected inflation is that industries have become concentrated over the past three decades. As industries become concentrated, they have greater market power to protect margins and pass along price increases.  Sadly, supply chain issues further favor the larger firms and could lead to additional concentration.
• Over the years, the number of jobs requiring advanced education has grown. Anecdotal reports suggest that the advent of online job sites, which allow for easy application for positions, has led hiring managers to require a BA or higher as a screening tool.  Hiring managers report that they have upscaled the positions as a way to reduce the crush of applications for positions.  However, that situation happened when there were fewer jobs than candidates.  In the current environment, firms are scrambling to find workers and thus are moving the other direction—ending the need for college for various positions to expand the pool of applicants.  Background checks are being eased, and other restrictions are being lifted.
• We have noted recently that financial markets, especially the financial media, are seeing massive mood swings on the non-farm payroll data. This chart suggests participants should not get too excited about the first month’s report.

(Source:  Axios)

As this shows, we have seen massive revisions this year.  Much of this is due to the seasonal adjustment process.  Seasonal adjustments are made to take account for the normal seasonal swings in hiring and are based on recent history.  Recent history, unfortunately, has been anything but normal and leads to distortions that are addressed in the revisions.  We also warn that every year, the BLS benchmarks have revisions, and even these numbers are subject to change.  The best advice is to use a three-month smoothing process which reduces the front-month impact and takes the revisions into account.

• Airlines until recently were offering early retirement to pilots, because the pandemic was increasing the number of pilots ending their careers. Now, airlines are hiring aggressively.  They are also boosting pay for attendants who are willing to work on holidays.
• One of the trickier areas of monetary policy and inflation is housing. That’s because a house is both an asset and a cost. In the U.S., we use a tool called “owner’s equivalent rent” to parse out the impact of housing operating costs for inflation purposes.  For the most part, central banks are careful about including asset prices in policy aims because it appears as if they are targeting asset prices. Thus, there is great interest in the Reserve Bank of New Zealand’s decision to include home prices in the inflation policy.  So far, most of their policy actions have been regulatory; it has discouraged low down payment mortgages and supported higher density housing projects.  However, if the RBNZ begins raising rates because of high home prices, the increase in rates will likely lead to weaker home prices, triggering declines in wealth.

  China news: 

• China has maintained a zero-COVID-19 policy, meaning that instead of preparing for the endemic presence of the virus, Beijing continues to shut down areas where infections develop. Especially as anti-viral treatments emerge, this policy will become harder to maintain, given their economic costs.  However, the Xi regime has staked its reputation on the policy, making it difficult to end.
• Regulations surrounding the insider sale of stock apparently are not consistent across nations. Chinese executives took advantage of this condition to dump New York-listed shares of their companies when crackdowns developed in China.
• A Chinese intelligence officer has been convicted of trying to steal secret information from General Electric (GE, USD, 108.74).
• Joseph Nye, a professor of foreign policy, has penned an op-ed on the Cold War notion with China, showing the concept to be improper, at least in comparing it to the one with the Soviets. The U.S. and China are closely linked economically, making isolating China much more complicated.
• As part of upcoming CPC meetings, General Secretary Xi will be creating a historical narrative that puts him on par with Mao and Deng. We expect this idea to be approved, which will further boost his power.
• China’s trade surplus expanded further in October. On a 12-month rolling basis, it hit a new high.

• Nations around the world know that the U.S. and others have satellites that allow intelligence agencies to monitor their activities. North Korea, in response, performs sensitive activities underground.  China is apparently practicing missile strikes on mockups of U.S. aircraft carriers.  Beijing is sending an unmistakable signal that these vessels are vulnerable.
• China’s digital CNY is seeing wider usage.

 Crypto:  Stablecoins and DarkSide are the major headlines today.

• U.S. regulators are expressing greater concern over the problems associated with stablecoins, calling for “urgent” regulation.
• The U.S. has put a $10 million bounty out on the DarkSide hackers.

COVID-19:  The number of reported cases is 250,005,427, with 5,052,148 fatalities.  In the U.S., there are 46,488,417 confirmed cases with 754,431 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 534,081,335 doses of the vaccine have been distributed, with 430,927,624 doses injected.  The number receiving at least one dose is 223,629,671, while the number receiving second doses, which would grant the highest level of immunity, is 193,832,584.  For the population older than 18, 70.1% of the population has been vaccinated.  The FT has a page on global vaccine distribution.

• An appeals court has temporarily halted the vaccine mandate. Tensions over the mandate remain high.
• China has been distributing its vaccines to foreign militaries.
• The U.S. is ending most foreign travel restrictions to vaccinated foreign visitors.
• One of the more troubling side effects of the mRNA vaccines is myocarditis. Researchers are trying to determine why this side effect occurs.  The side effect is rare and mostly affects young people.  There have been 877 cases out of 86 million (0.001%) in those 30 years or younger, and the majority of cases are in men.  Most cases self-resolve in a few days, and COVID-19 itself can lead to myocarditis (0.146%).  There is some concern that if the injection directly hits a vein, it can expose the heart to the vaccine and raise the risk of the side effect.

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

[Posted: 9:30 AM EDT] | PDF

Good morning! A strong jobs report has pushed U.S. equity futures higher this morning. Today’s Comment begins with U.S. economic and policy news followed by several China-related stories. International news is next, and we conclude with our pandemic coverage.

Economics and policy:

• The Joint Committee on Taxation, a nonpartisan group, estimates that the latest version of the social spending package would raise $1.5 trillion over 10 years. The analysis does not include possible revenue increases due to increased IRS enforcement. However, the score suggests the bill is relatively revenue neutral, which should increase its chances of becoming law. The House is expected to vote on the bill on Friday.
• The White House released guidelines on Thursday ordering employers with 100 or more workers to mandate vaccinations or require weekly testing by January 2022.
• The State Department approved a major arms deal with Saudi Arabia. The deal comes as a surprise given the harsh stance the President took against Riyadh on the campaign trail. As a candidate, Biden vowed to make the country a pariah. Over the last few years, Saudi Arabia has been criticized for its war in Yemen and its alleged involvement in the killing of U.S.-based journalist Jamal Khashoggi. In defense of the deal, the Pentagon has stated that the arrangement is intended to ensure that Saudi Arabia has the ability to defend itself from Iranian-backed Houthi airstrikes. It is worth noting that, although the deal has been approved, no contract has been signed.
• A pact to end the use of coal was met with resistance at the COP26 summit. The wording of the agreement was watered down to extend the deadline to discontinue coal use by 2032. Additionally, major countries including China, Australia, India, and the U.S. all refrained from signing the agreement.
• Senate Democrats are expected to meet with Federal Reserve Chair Jerome Powell to discuss his renomination. The progressive wing of the party has expressed reluctance to back his reappointment due to his previous support for loosening financial rules. Senator Elizabeth Warren (D-MA) has already stated she will not vote to support his reappointment. That being said, financial markets have already priced in a second term for Powell; thus, a rejection may have a negative impact on equities. Additionally, there are no obvious replacements if he is rejected. Fed Governor Lael Brainard, the perceived front-runner, has already received pushback from Senate Republicans who have vowed to make her confirmation process difficult. We think Powell’s chances of being reappointed are high, even without the support of Warren. As a Republican, it is likely that his confirmation likely has bipartisan support, particularly among moderates.

China:

• Beijing announced on Thursday that it was open to negotiations on its subsidies to industrial and state-owned enterprises. The remark appears to be an olive branch to the U.S. ahead of a planned meeting between President Xi Jinping and President Joe Biden. During the meeting, the two sides will talk about deescalating trade tensions. Earlier this week, Treasury Secretary Janet Yellen stated China is expected to meet its commitment under the Phase One trade agreement. If true, it could mean that the U.S. may consider lowering tariffs that were imposed by the previous administration.
• Republican Senators introduced a bill into Congress that will seek to boost Taiwan’s military defenses. The bill comes amidst growing speculation that China will try to invade Taiwan. It has been widely reported that Taiwan is not capable of defending itself. The bill will grant Taiwan $2 billion in military aid through 2032 as long as the island meets certain criteria.
• On Friday, China imposed sanctions on three Taiwanese officials in response to the island’s growing push for international support. The sanctions will ban these officials from traveling or doing business in mainland China. Although the sanction will likely not impact these politicians, as many of them have no plans on traveling or doing business in mainland China, the sanctions do represent an increase in tensions between Taipei and Beijing.
• Chinese bonds have rallied after the People’s Bank of China injected more liquidity into the market as it deals with the country’s debt crisis. The move comes after a second real estate developing company, Kaisa Group (1638 HK, HKD 1.01), also appears to be on the brink of default.
• Regulators in China have instructed local banks to limit the sale of wealth management products due to the risk it may pose to the country’s economy. Wealth management products have been used by Chinese property developers as a source of off-balance-sheet funding. It is believed that these products helped fuel the ongoing debt crisis in China.

International news: 

• OPEC and its allies refused to accelerate plans to increase oil production despite cries from other countries. The decision by OPEC not to increase production has angered the U.S., which is pushing the group to produce more oil. As a result, it is expected that the U.S. could consider releasing some of its strategic reserves and pursue ways to punish the group through antitrust laws.
• Saudi Arabia’s sovereign wealth fund is positioning itself to make investments in Chinese companies. The fund has applied for a Qualified Foreign Institutional Investor license. If granted, it will have the ability to purchase Chinese stocks directly as opposed to through a third party.
• The Japanese government has come to an agreement to provide one-off checks of $880 for each child under the age of 18. The stimulus checks appear to be Prime Minister Kishida Fumio’s first attempt to lay out his “new capitalism” agenda, which is focused on the redistribution of wealth within the country.

COVID-19:  The number of reported cases is 248,757,793, with 5,032,337 fatalities.  In the U.S., there are 46,335,944 confirmed cases with 751,559 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 528,775,895 doses of the vaccine have been distributed, with 426,728,092 doses injected.  The number receiving at least one dose is 222,591,394, the number of second doses is 193,227,813, and the number of the third dose, the highest level of immunity, is 21,483,519. The FT has a page on global vaccine distribution.

• Coronavirus cases have started to rise again in Europe. The surge in infections has led to talk about reintroducing restrictions in order to limit the spread of the virus over Christmas break.
• The U.K. became the first country to approve the COVID-19 antiviral pill developed by Merck (MRK, $90.54) on Thursday. Pfizer has also developed its own pill but is currently waiting for review.

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

[Posted: 9:30 AM EDT] | PDF

Good morning.  Risk markets are mostly moving higher this morning.  Our coverage focuses on central banks this morning.  The Bank of England was unexpectedly dovish while the Fed is moving to taper.  We look at the impact.  Our regular coverage begins with economics and policy.  Budget talks continue, and the labor markets continue to confound.  China news is next; the food directive remains a puzzle.  The international roundup follows, and we close with our regular pandemic update.

BREAKING:  The Bank of England leaves policy unchanged in the face of rising inflation.  Markets had been leaning toward at least a signal of accommodation removal.  The GBP has fallen hard on the report.

FOMC meeting:  The FOMC announced it would begin reducing the pace of its balance sheet expansion beginning this month by $15 billion per month in November and December and then reassess its position.  The general expectation is that the FOMC will continue at this pace unless (a) strong growth and inflation worries require a faster drawdown or (b) slower economic growth or slower inflation requires a slower drawdown or re-expansion.  In the press conference, the first question was, “is the market wrong to be projecting rate hikes?”  It was a good question, and Powell, showing he has learned how to speak like a Fed Chair, responded but didn’t answer the question.

Our read is that the market has built in 50 bps of rate hikes over the next two years.

The rise in the implied rate of the two-year Eurodollar futures has increased rapidly in the past month.  This level is consistent with 50 bps of tightening.  It should be noted that in 2014 when this level was reached, it took about a year before the first rate hike. Thus, the market seems to be discounting a rate hike by this time next year.

When (if?) policy rates begin to rise, the real test begins.  We have avoided a “taper tantrum” this time because Powell has been able to separate balance sheet policy from interest rate policy.  Essentially, the FOMC is using tapering as its answer to the inflation issue.  If inflation turns out to be “transitory” and begins to fall next year, then Powell will have been vindicated for moving slowly to pull stimulus.  To a great extent, the equity markets, which as we note below, took the taper news quite well, depend on liquidity flowing to stocks and not on real goods and services.

There are two other issues that emanate from yesterday’s decision.  The first is whether this action changes the renomination decision.  The president has indicated that a decision will be coming “fairly quickly.”  We would argue that he is already late.  We suspect Powell would have likely preferred to have waited, but the FOMC was dead set on moving.  Powell’s strongest critics are on the left, but most of the left-wing economists we read are generally supportive of the chair; populist left-wing politicians are less supportive.  But, if there is anyone with any market sensitivity in the White House, yesterday’s market action was exactly what the president should want—there was only a modest rise in long-term interest rates, equity prices rallied, and commodity prices fell.  This morning, we are seeing a rebound in oil and gold, but nothing close to new highs.  That is a good outcome, and Biden should support that.  We think that if Powell is rejected, the financial markets won’t be pleased.

The second issue is the economic impact of tapering.  In general, the history of QE episodes shows the impact of QE has been mixed.  In some previous episodes, ending QE led to lower long-term interest rates.  Our focus is the impact on the money supply.

As this chart shows, the relationship between the balance sheet and M2 is mixed.  For example, during the expansion of the balance sheet in 2013, M2 and the balance sheet moved together.  M2 continued to trend higher, mostly unaffected during tapering and QT.  However, in the latest episode, M2 has risen in concert with the balance sheet, raising concerns that tapering will slow money growth.  If lending increases, tapering won’t be a big deal, but if M2 tracks lower because of tapering, it may reduce liquidity and potentially be negative for financial markets.  This is a risk we will monitor closely in the coming months.

To sum up, the Fed’s nightmare is the Tinbergen problem.  Jan Tinbergen, who won the first Economics Nobel prize, postulated that policymakers need an equal number of policy tools for the number of policy problems.  Trouble comes if a policymaker, for example, has one tool but two problems.  Stagflation is the worst of all outcomes because the FOMC must choose whether it will attack inflation or slow growth.  Although Q3 GDP was sluggish, the current Atlanta FRB GDPNow projection is for 8.2% growth in Q4.  We expect that estimate will come down, but it suggests Q3’s weak growth was probably an aberration.  Yesterday’s ISM Service report is consistent with that position.  The most likely trend for policy is to tighten, but we expect the pace of tightening to be slow, mostly because the labor markets are not close to full recovery… with the caveat that the pandemic has played havoc on the labor markets and thus it is hard to determine if what appears to be the lack of recovery is really a permanent change.

Economics and policy:  Budget talks and tight labor markets continue.

• Budget talks continue. There are two developments to note. First, the House leadership has added paid leave and the partial (from a cap of $10,000 to $72,500) restoration of SALT deductions to the budget.  These measures have been opposed by Sen. Manchin (D-WV), so it doesn’t appear this action will increase the chance of passage.  In particular, the SALT measure is a sop to the wealthiest taxpayers.  It isn’t even clear whether the left-wing populists can support it.  Second, Sen. Manchin and Sinema (D-AZ) are no longer united on all issues.  If they diverge, it further complicates negotiations because in a party-line vote, approval of both is required.
• Shortages of workers are creating all sorts of issues for the economy. The issue of truck drivers has been well documented.  Poor working conditions, better pay and job conditions in other areas of the economy, logistical snarls that affect pay, are leading to a situation where it is estimated that the industry needs 80,000 more workers.  In other industries, firms are taking unusual steps to improve working conditions, including free clothes, education, and other benefits.  One factor that could relieve some of the shortages would be to increase immigration.  That is a political landmine, so an increase of foreign workers probably won’t be fully implemented.  Meanwhile, at John Deere (DE, USD, 343.05), the strike continues, with the company saying it won’t make a better offer.
• Rent inflation has been tame, with the yearly change only up 2.4% in September. As the economy reopens, anecdotal reports signal that rents are rising fast.
• At long last, banks are ending the practice of using LIBOR for loans. So far, the SOFR rate[1] seems to be the most popular, although it is tied to sovereign rates and not bank cost of funds.  We expect banks to use a number of new instruments that have emerged before we eventually settle on a single rate for loan origination.

China news:  The uncertainty surrounding the food directive continues, and China is expanding its nuclear capability.

• The recent directive for households to store food is raising many concerns. Authorities are attempting to censor reports of panic buying, but it appears to be happening.  Although it is arguable that Beijing sees tight food supplies and is warning households to prudently buy now, similar to warning in the U.S. to buy early for Christmas, there are underlying fears that this directive is a precursor to war.  Images of military convoys are circulating but seem to be quickly censored.  The one linked in the previous sentence is said to be from Fujian province, which is near Taiwan.
• In what could be related news, U.S. military officials confirm that China appears to be rapidly expanding its nuclear capability. If China intends to become aggressive in the region, it has to fear the U.S. could use the threat of a nuclear strike to stop its actions.  Thus, it may see the need for a more credible nuclear deterrent.
• The EU has invited officials from Taiwan to discuss China’s disinformation efforts. This invitation will certainly not be welcomed by Beijing.
• China is dealing with a “me too” moment on reports that a tennis star was accosted by a high-ranking CPC official. This is the first time such accusations have been leveled against a high-ranking official; it will be interesting to see how Xi deals with this issue.  The official, Zhang Gaoli, who is retired, was a key ally of Premier Li Keqiang.  Given that relations between Li and Xi are not warm, Xi might harshly punish Zhang to undermine Li.
• Shenzhen is easing some rules for land developers in relation to land purchases.
• In a surprise move, China has applied to join a digital agreement with Singapore and New Zealand.

International roundup:  The fish fight is calming down, and Ethiopia is spiraling into civil war.

• The EU and the U.K. continue to work to ease the fishing dispute between Britain and France. Earlier, the French seized a U.K. fishing trawler; it has been released, which is a show of progress.
• The U.S. continues to press OPEC to lift output. We doubt that the cartel will cave in to U.S. pressure.
• We have been watching a deteriorating situation in Ethiopia, which is in what appears to be a full-blown civil war. Rebels are closing in on Addis Ababa.
• Islamic State (IS), which lost its caliphate in the Iraq/Syrian frontier, is reemerging in Afghanistan as an opponent to the Taliban.
• Meta Platforms (FB, USD, 331.70) is facing substantial regulatory risk from the EU. In the U.S., regulators and legislators have to weigh the costs of corralling a major U.S. company.  Europe doesn’t face those costs and is rapidly moving to implement regulations that will undermine the company’s business model.

COVID-19:  The number of reported cases is 248,243,646, with 5,024,725 fatalities.  In the U.S., there are 46,253,861 confirmed cases with 750,431 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 525,071,855 doses of the vaccine have been distributed, with 425,272,828 doses injected.  The number receiving at least one dose is 222,268,786, while the number receiving second doses, which would grant the highest level of immunity, is 192,931,486.  For the population older than 18, 69.8% of the population has been vaccinated.  The FT has a page on global vaccine distribution.  The weekly Axios map shows continued improvement, although some states are seeing a resurgence, especially in the southwest.

• The Biden vaccine mandates go into effect today.
• The WHO granted emergency authorization to a new Indian vaccine, Covaxin. It is a two-dose vaccine but does not have strict storage requirements, which should make it popular in the emerging world.
• The U.K. has approved Merck’s (MRK, USD, 88.68) antiviral treatment. U.S. and EU regulators are still evaluating molnupiravir, a pill treatment for patients who have contracted COVID-19.  An easy-to-distribute antiviral is critical for two reasons.  First, full inoculation isn’t going to occur, so a treatment to keep people from becoming seriously ill is necessary.  Second, even among the vaccinated, breakthrough infections occur, and having a secondary treatment is necessary to open up economies.

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[1] See what we did there?

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with a slew of U.S. news ranging from a preview of today’s Federal Reserve decision on monetary policy to a new administration antitrust case.  We next share a few thoughts on various global and international issues.  We wrap up with the latest developments related to the coronavirus pandemic.

U.S. Monetary Policy:  The Federal Reserve will issue its latest decision on monetary policy today.  It is widely expected the officials will announce a tapering plan to slow and eventually end the Fed’s balance sheet expansion by around mid-2022.  Chair Powell has stressed that the benchmark fed funds interest rate would likely be kept near 0% for some time after the balance sheet has been capped, but there is still some potential for volatility in the bond market as policy decisions are announced or if investors concerned about inflation and currency debasement try to force the Fed’s hand.

U.S. Fiscal Policy:  As Democrats in Congress continue to haggle over their $1.85 trillion healthcare, education, and climate-change bill, they’ve reportedly come to an agreement on a series of measures designed to bring down prescription drug prices.

• The agreement, backed by the White House, would:
  • Empower Medicare to negotiate the price of some drugs;
  • Penalize drug companies for raising prices faster than the rate of inflation;
  • Cap out-of-pocket drug costs for seniors at $2,000 annually, including a $35 monthly maximum for insulin.
• The agreement will likely meet some Democrats’ demands for the bill, but the legislation will still face resistance from moderates like Senator Joe Manchin of West Virginia.  We continue to see a significant risk that no legislation will get done, at least in the near term.

U.S. Antitrust Policy:  Reflecting the Biden administration’s more stringent approach to antitrust policy, the Justice Department yesterday filed a lawsuit to block top book publisher Random House from completing its proposed $2.2 billion purchase of rival Simon & Schuster.  Random House is a unit of Bertelsmann SE (BTG4.SG, 357.00), while Simon & Schuster is a unit of ViacomCBS (VIAC, $37.37)

• Interestingly, the Justice Department’s suit doesn’t rest on any economic harm that might be imposed on book purchasers by way of higher prices and the like.  Rather, it’s based on concerns that the combination could weaken the compensation paid to authors.
• In any case, the suit underlines the increasing regulatory risk on companies, as some legal scholars and activists argue that antitrust concerns shouldn’t be limited to just consumer prices and other harms to consumers.

U.S. Politics:  Democrats got taken to the political woodshed in yesterday’s gubernatorial election in Virginia, and they may still lose the New Jersey governorship as well when the ballot counting is done there.  With almost all the Virginia votes counted, Republican candidate Glenn Youngkin has received about 51.0% of the vote to Democrat Terry McAuliffe’s 48.4%.

• Initial indications suggest the Republicans benefited from a much stronger turnout of their base than the Democrats, although analysts also point to Youngkin’s success in highlighting local education issues and not associating too closely with former President Trump.
• A key question now is how the Democrats will understand their loss and how they might adjust their strategy going forward.  A prevalent theory among analysts is that the Democrats have become too wedded to “identity politics” and other issues that resonate with highly educated, affluent, white voters in major cities, rather than the economic and cultural issues that are more salient to the legions of lower-middle-class and working-class voters that Republicans have made gains with.  In today’s populism-driven politics, that failure to adjust could help cement Republican control of the federal and state governments into the future.

U.S. Labor Market:  Most union employees at Deere (DE, $355.30) voted to reject a second, richer contract offer and continue their three-week strike against the company.  Workers at two parts plants in Denver and Atlanta, who work under a separate contract, voted to approve an offer with identical economic terms as the one that the other employees rejected.  We still think the vote to reject illustrates how many workers are now increasingly confident in their market power.

• Potentially, that could point to further labor action, bigger wage gains, and perhaps even some additional inflation pressure in the coming years.
• We continue to believe that today’s high inflation rate will moderate over time as supply chain disruptions get worked out and pent-up demand peters out, but tighter labor markets, increased regulation, and reduced globalization could well mean that inflation won’t fall all the way back down to the levels common before the pandemic.

Climate Summit:  On the sidelines of the COP26 summit on climate change in Glasgow, former Bank of England Governor Carney said his Glasgow Alliance for Net Zero (GFANZ) group has gotten commitments from global financial firms for $130 trillion of private capital to help achieve net-zero greenhouse gas emissions by 2050.

• However, even some climate activists have expressed skepticism about whether the funds will really be allocated to effective climate projects over time.
• Besides the skepticism on financing commitments, some green energy firms also face more mundane operations issues, ranging from low wind speeds to supply disruptions.

United States-Russia:  In another sign that the Biden administration is looking for ways to ease tensions with Russia so it can focus on other priorities, most notably China, CIA Director Burns today was in Moscow for a meeting with his counterpart at Russia’s Foreign Intelligence Service (one successor to the KGB) and the head of President Putin’s security council.

Japan:  For the first time since 2013, the Bank of Japan and the government’s top economic officials have reaffirmed their commitment to cooperate on achieving 2% inflation.  The move could temper market worries that the goal might be abandoned after years of below-target inflation or that stimulus might be withdrawn now that Prime Minister Kishida has been formally elected for a full term.

France-United Kingdom:  After threatening punitive measures against Britain for denying licenses to French boats seeking to fish in British waters under the post-Brexit trade deal between the U.K. and the EU, President Macron said he would delay the measures in order to “give a chance” to last-ditch talks aiming to resolve the dispute.  Macron’s action seems to have diffused the situation for now, but it still appears that the U.K. is chafing under the trade deal and will likely continue to pursue changes to it in the future.

China:  During a meeting with China’s top market regulator, Premier Li said the government needs to lower fees and taxes for businesses, particularly struggling small and medium-sized enterprises, to counter the country’s economic slowdown.

• Tax cuts would probably be a relatively healthier way for the government to deal with the slowdown stemming from the country’s energy shortage, disruptive pollution controls, and new restrictions on the real estate sector.
• However, as in the past, officials could eventually be tempted to roll out bigger spending and lending programs that would prolong China’s debt problems.

Ethiopia:  The government has declared a state of emergency as rebel forces from the northern Tigray Region said they were gaining ground and authorities in the capital prepared for a possible military assault.

COVID-19:  Official data show confirmed cases have risen to 247,740,899 worldwide, with 5,017,139 deaths.  In the United States, confirmed cases rose to 46,172,312, with 748,630 deaths.  Vaccine doses delivered in the U.S. now total 521,502,845, while the number of people who have received at least their first shot totals 221,961,370.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• According to the latest CDC data, 66.9% of the U.S. population has now received at least one dose of a vaccine, and 58.1% of the population is fully vaccinated.
• The CDC gave final approval to use the vaccine developed by Pfizer (PFE, $45.45) and BioNTech (BNTX, $289.48) on children aged 5 to 11.  The vaccine, at one-third the dosage of the adult version, could be administered to many children as early as today, although many parents are likely to hold off on vaccinating their children immediately.
• In many European countries, the latest wave of the pandemic continues to recede, but in Russia, cases continue to surge, and the death toll reached a record for the second straight day.

 Economic and Financial Market Impacts

• As the latest wave of infections recedes in many countries and economic activity and prices continue to rebound, negative bond yields are becoming less common in Europe.
  • French, Irish, Dutch, and Swiss yields have all either turned positive or flirted with the line in recent weeks and months.
  • German 10-year bond yields, the region’s benchmark, are still negative but rose as high as -0.07% this week, the closest they have come to turning positive since April 2019.

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

[Posted: 9:30 AM EDT] | PDF

Good morning and happy All Souls Day!  Risk markets are mostly steady this morning as the FOMC begins its meetings.  We noted yesterday that it is widely expected the Fed will announce a tapering plan to slow and eventually end its balance sheet expansion.  Economics and policy begin our coverage.  China news is up next. Crypto and international news follow, and we close with pandemic updates.

Economics and policy:  Yellen hints that the debt ceiling may need to be raised unilaterally, and Sen. Manchin (D-WV) puts a damper on the budget.

• We have been expecting the debt ceiling to be resolved by the Democrats raising it in the reconciliation bill. The leadership has resisted that because they know the GOP will use that against them in the 2022 midterms.  So, the Democrats want the GOP to vote with them to raise the limit.  That would be fair.  However, as is often said, “politics ain’t beanbag.”  Treasury Secretary Yellen has apparently decided that it would be better to raise the debt ceiling without the GOP than to risk default.  On that topic, the Treasury will probably be able to function without a debt limit increase at least until mid-December, and perhaps as long as mid-February.
• Yesterday, we noted retirements are up, and the labor markets have tightened because of it. Although, there isn’t much evidence of that in the Social Security data.  That’s because the newly retired are deferring their application for Social Security, which will boost the monthly payment compared to taking it immediately.  This information suggests that more affluent workers may be leaving the labor force, who can afford to delay taking Social Security.
• Manchin threw a spanner in the works by stating in a press conference yesterday suggesting he is in no hurry to vote for the budget. This action hardens his position and increases the risk that nothing gets done, at least for a while.
• Also, yesterday, we noted two prominent GOP senators taking positions in opposition to the party’s business constituency in terms of globalization. It appears that, at long last, the pandemic is leading firms to reshore in order to secure supply chains.
• Recent polls show a notable negative turn in attitudes towards the economy; inflation worries appear to be the primary reason.
• Although the anecdotal evidence continues to point to supply chain issues, the ISM subindex data showed some interesting improvement.

For several months, the majority of purchasing managers were saying that customer inventories were too low.  For the first time since February, they report that 50.1% say customer inventories are “about right.”  If that trend holds, it suggests that the perception of stockpiles is improving.  On the downside, lead times for production materials are at the highest level since 1979.

• The ISM information comes in light of anecdotal news. First, the world’s largest container shipping company, Maersk (AMKBY, USD, 15.06) says there is “no end in sight” to the current shipping crisis.  Second, the Ports of Los Angles and Long Beach are enforcing pickup fines of $100 per day for containers that are not moved from their ports.  Given the chassis shortage, the fines are yet another cost to shipping.  Third, exacerbating the problem is warehouses that are full, meaning containers have nowhere to go.
• Walmart is holding a national supply chain hiring event. What is starting pay?  It is $20.37 per hour.  These positions are mostly warehouse work, but the pay level will likely force other retailers to match it or lose access to workers.
• A group of NYC taxi drivers is holding a hunger strike to force the city to renegotiate loans on medallions which have proven onerous. The medallions skyrocketed in value until 2014, when ridesharing upended the industry, leaving taxi drivers with loans backed by an asset that has collapsed in value.

China news:  Food comments are worrisome, and Xi may be preparing for the title of chairman.

• China is issuing directives on food, the so-called “clean plate campaign,” in a bid to ease food prices. Although official CPI food prices in China are falling, that is most likely due to the spike last year in pork prices.  The two-year change in prices is positive, though falling.  However, prices have been high in recent years.

The program also opposes binge eating and attempts to better use food waste.  Beijing is also directing households to stockpile food.  All this looks like the government is deeply concerned about food shortages; perhaps the worry is that shipping problems may lead to disruptions.

• Next year, the CPC will hold meetings that would usually signal the next General Secretary/ President of China. Xi is staying in place, however, so it is not certain what will happen at these meetings.  One potential outcome would be for Xi to declare himself Chairman of the Party Central Committee, meaning he will take the position created for Mao and be in charge for life.  He then could appoint a General Secretary/President but remain in power.  By making this move, he would use precedent and not create something new.
• Treasury Secretary Yellen suggested that the U. S. might consider lowering or eliminating some tariffs on Chinese goods to reduce inflation. Technically, she is correct; we note import prices are up 9.2% from last year.  Chinese authorities jumped on the comments, hoping to use them as leverage to ease tariffs.  Politically, we doubt the Biden administration will take this step.  Being seen as “soft on China” is politically dangerous, and given the rising discontent surrounding the economy, taking steps to help China, even if it lowers prices a bit, probably won’t help.
• The Chinese developer Yangon Group (000671, CNY, 2.78) has asked to restructure its debt, trying to avoid default. The Chinese real estate sector remains under pressure.
• The American business lobby in China is warning of an exodus of western executives, mostly due to China’s zero-tolerance policy on COVID-19. In a similar vein, Yahoo announced it is quitting China.
• China declared it is tapping its state reserves of gasoline and diesel in light of fuel rationing.
• Byte Dance is reducing work hours.
• The G-20 nations are not united regarding participating in the Winter Olympics, which will be held in China.

Crypto:  U.S. regulators are moving to apply money market regulations to stablecoins.  A recent joint report lays out regulator concerns and recommendations.  We are seeing a gradual adoption of cryptocurrencies; regulation will be necessary for broader usage.

International roundup:  The G-20 met over the weekend, and COP26 starts today.

• As the coalition partners in Germany negotiate to form a government, there is increasing openness to using Eurobonds to fund climate projects. The FDP opposes deficits and taxes.  Using Eurobonds is a way to move the borrowing “off balance sheet” and could help expand and normalize an EU full faith and credit instrument.
• France and the U.K. are trying to lower tensions concerning fishing rights. France has postponed retaliation against the U.K. for denying some French fishing vessels rights to operate in British waters.
• Russia appears to be building up troops on the Ukraine frontier. Moscow does this on occasion, mostly to intimidate Kiev.

COVID-19:  The number of reported cases is 247,215,525, with 5,008,694 fatalities.  In the U.S., there are 46,093,886 confirmed cases with 747,167 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 518,561,375 doses of the vaccine have been distributed, with 423,005,384 doses injected.  The number receiving at least one dose is 221,760,691, while the number receiving second doses, which would grant the highest level of immunity, is 192,586,927.  For the population older than 18, 69.6% of the population has been vaccinated.  The FT has a page on global vaccine distribution.

• The Biden administration is proceeding with vaccine mandates, despite lawsuits and opposition.
• The CDC is discussing approving the Pfizer (PFE, USD, 43.64) vaccine for children aged 5-11.
• Rising infections in the Netherlands have led the government to issue new restrictions.

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