by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

In today’s report, we examine the recent weakness in the yen. Up next, we review the latest developments in the Russia-Ukraine war. We briefly discuss some international and U.S. news stories and close with our COVID-19 coverage.

 Dovish BOJ: The yen depreciated to a 20-year low against the dollar following concerns that the Bank of Japan will maintain its accommodative monetary policy while other central banks tighten. The sell-off in the currency was ignited after BOJ Governor Haruhiko Kuroda stated consumers have become more tolerant of higher price rises. Although Kuroda issued a retraction, the remark was viewed as a signal that the central bank may not remove policy accommodation to rein in rising inflation. The latest CPI report showed prices rose 2.4% in April, the fastest pace in over eight years.

Japan’s high debt burden and reliance on exports for growth likely contributed to the country’s hesitancy to raise rates. Earlier this month, Prime Minister Fumio Kishida walked back an audacious pledge to balance the government’s budget by 2025. The change in tone suggests Tokyo would like to reduce its debt burden without hurting the economy. Japan has the highest government debt among advanced economies, so raising rates would complicate government efforts to reduce its debt burden. Moreover, Japan’s reluctance to raise rates along with other countries would also allow its currency to depreciate against other countries, therefore making its exports relatively more competitive. Delaying monetary tightening could potentially backfire. Japan imports over 90% of its energy resources. As a result, a declining yen would worsen the inflationary impact of rising commodity prices, therefore hurting business profitability, household budgets, and possibly slowing economic growth. That being said, the yen could strengthen if the U.S. were to slow down significantly or contract.

 Russia-Ukraine update:  Russian forces continue focusing on taking over the Donetsk and Luhansk oblasts in Eastern Ukraine. There have been reports that Russia has seized control over Severodonetsk; however, Ukrainian officials have maintained that fighting is still taking place in the city. Ukrainian forces have focused their strategy on increasing the number of casualties rather than controlling the entire city. Meanwhile, Russia has engaged in informational warfare through social media and text on personal devices. Russia has used these platforms to threaten to harm Ukrainian soldiers or their family members if they do not surrender. The messages are intended to dent Ukrainian troops’ confidence, so they will not keep up the fight. Russia has been able to make substantial gains within Severdonetsk.

Other Russia-Ukraine news:

• The West appears to be less committed to isolating Russia. Former German Chancellor Angela Merkel warned that isolating Russia cannot be sustained in the long run. Her comments contrasted starkly with President Biden, who stated he wanted Russia to be a pariah state as long as Putin was in charge. The difference in viewpoint suggests the West, particularly the U.S. and EU, are not on the same page regarding how to deal with Russia, particularly as the war continues indefinitely. The divide over how to proceed with Russia could lead to further disagreements further down the road.
• The UN warns that the war in Ukraine will increase the risk of world hunger. Talks to help end the blockade of the Black Sea have stalled due to Russia’s refusal to allow ships to leave the main port of Odesa and Ukraine’s reluctance to open itself up to more attacks. Food shortages have been associated with rising instability in developing countries, particularly in the Middle East and Sub-Saharan Africa. We could see political turmoil spread in other parts of the world due to food shortages.
• Russian inflation decelerated at a faster than expected pace in May. The slowdown in price increases suggests households may be adjusting to the sanctions. Inflation remains elevated, rising 17.1% from the prior year in May.
  • The Russian Central Bank is expected to reduce interest rates at its next meeting on Friday. The move is designed to encourage lending and stimulate economic growth.

International news:

 Chinese regulatory crackdown on its tech sector appears to be easing. This week, authorities ended their probe of the Chinese ride-sharing app Didi (DIDI, $2.51), cleared several video games for release, and there are rumors of a potential revival of the ANT Group Co. IPO[1]. The change in sentiment appears to be driven by Beijing’s desire to encourage more investment. It may be too soon to say whether the crackdown is ending, but the recent activity provides a favorable outlook for Chinese tech stocks.

• The OECD and the World Bank slashed their global growth forecast for the year. The OECD revised its 2022 estimate from 4.5% to 0%. Meanwhile, World Bank downgraded its 2022 GDP forecast from 4.1% to 2.9%. Both groups warned that the war in Ukraine and China’s aggressive COVID-19 policy were slowing down economic activity.
• The United Arab Emirates Energy Minister has warned that oil prices have not peaked yet, citing China’s demand has not fully returned. His remarks may be a sign that the UAE could push OPEC members to increase their output targets. Most members have maxed out their production, but Saudi Arabia and the UAE appear to have the ability to pump more.
• Turkey has demanded that Greece demilitarize islands in the Aegean Sea. Although the two countries are NATO allies, they routinely engage in disputes. This spat is unlikely to develop into a major conflict.
• The European Central Bank announced it would start its interest rate hike next month. The ECB is expected to raise rates by 25 bps in July but hinted at steeper rate increases in the future.

U.S. Economic and Policy news:

• The SEC is looking into overhauling the equity market to increase competition among traders. One potential rule change would require firms to route individual investors’ orders into auctions. The proposed measures appear to be in response to last year’s meme stock trading bonanza and suggest retail brokerages are coming under increased scrutiny from regulators.
• The Biden administration is looking to “reconfigure” tariffs imposed under President Trump to reduce price pressures. Treasury Secretary Janet Yellen stated that even though removing tariffs could help ease inflation, it is not the remedy.
• The U.S. is actively discussing with its European allies about forming a buyer’s cartel and setting a cap on Russian oil. The goal would be to keep Russian oil on the market to satisfy the demand from India and China while limiting the amount of revenue Moscow can generate from sales. Buyers’ cartels have existed in the past; however, they have not lasted long due to conflicting interests among members.

COVID-19:  Official data show confirmed cases have risen to 533,761,253 worldwide, with 6,305,225 deaths. The countries currently reporting the highest rates of new infections include the U.S., Taiwan, Australia, and Germany. (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 have risen to 85,214,036, with 1,010,520 deaths. In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,567,092, equal to 66.7% of the total population.

• The Biden administration is preparing to distribute vaccines for children under the age of 5. The FDA is expected to authorize shots for emergency use later this month. The vaccination drive could help slow the spread of COVID-19.

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[1] Officials have stated that these rumors were false.

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today begins with an update on the Russia-Ukraine war, where it appears neither side achieved any substantial territorial gains over the last day.  The more important news from the war is that we are seeing the first signs of significant insurgency attacks by Ukrainian partisans in areas controlled by the Russians.  We next review other international and U.S. developments with the potential to affect the financial markets, including an important revelation that China is apparently developing its second overseas military base in Cambodia.  We wrap up with the latest news on the coronavirus pandemic.

Russia-Ukraine:  In contrast with their recent modest gains, Russian forces yesterday appeared to take no new ground in Ukraine.  Although they staged attacks in several areas, they appeared to be concentrating on repositioning to support future offensives.  There were also no reports of significant new Ukrainian advances.  Meanwhile, Russian military bloggers have accused Ukrainians of artillery strikes against civilian areas far behind Russian lines, probably to discourage NATO countries from sending new, more advanced artillery and missile systems.  Separately, the Kremlin has intensified its effort to hide the scale of Russian casualties in the war.  According to the Institute for the Study of War, the Kremlin is threatening to nullify financial compensation to the families of Moskva crew members if they publicly discuss the sinking of the cruiser.  Some relatives, to protest, have refused to meet with Black Sea Fleet commanders in Sevastopol.

• In a potentially critical development, if the conflict turns into a long war of attrition, reports suggest that Ukrainians in occupied areas are increasingly staging bombings and other insurgency attacks on Russian forces.  Even without significant battlefield victories, bloody partisan attacks could potentially raise the cost to Russia of its invasion and help bring about a withdrawal or negotiated settlement in the future.
• In another potential military breakthrough, German Chancellor Scholz has backed the Baltic states in their demand for a big increase in the number of NATO troops on their soil.  The proposal is due to be discussed at NATO’s summit in Madrid in late June.
• Russian and Turkish officials reported no significant breakthrough after yesterday’s talks toward creating a sea lane to export grain from Ukraine across the Black Sea as a part of a UN-backed effort to address the global food crisis.
  • Notably, Ukraine wasn’t part of the talks and has not consented to any potential deal between Turkey and Russia, saying it needs guarantees that Moscow wouldn’t use a potential safe corridor to launch additional attacks.
  • U.S. officials have also been skeptical of the Turkey-Russia talks, given Ukraine’s opposition.  More broadly, the U.S. administration is torn over the best way to resolve the global food crisis sparked by the war.
• Reflecting the war and the remaining disruptions from the pandemic, the World Bank yesterday issued new economic forecasts calling for years of global stagflation, with conditions similar to those of the 1970s and an increased risk of emerging-market debt defaults like those of the 1980s.  The institution now expects global economic growth to weaken to 2.9% in 2022 from 5.7% in 2021.  Growth is expected to hover around the reduced pace over 2023 and 2024 as the war disrupts human activity, investment, and trade, while governments withdraw fiscal and monetary support.
  • The World Bank’s new growth forecast for 2022 is significantly worse than its January forecast of 4.1%.
  • Similarly, the OECD cut its growth forecasts to 3.0% in 2022 and 2.8% in 2023, compared with its December forecasts of 4.5% and 3.2%, respectively.

 China-Cambodia:  Western officials have revealed that China is secretly building its second overseas navy base in Cambodia, next to that country’s Ream Naval Base (see map below).  Like China’s first foreign base, on the eastern coast of Africa in Djibouti, the Cambodian base would be for the exclusive use of China and would be able to berth the largest Chinese warships.  Separately, new satellite imagery shows that China’s third aircraft carrier is nearing completion at a shipyard north of Shanghai and could be launched soon, although it likely wouldn’t enter service until 2024.

• Together, the bases in Djibouti and Cambodia would complement China’s suspected extensive network of secret military-use agreements at port facilities it has financed around the world under its Belt and Road Initiative.
  • U.S. officials suspect China was secretly trying to develop a similar naval base on the Persian Gulf in the United Arab Emirates until it was discovered last year.
  • Responding to U.S. protests, the UAE has apparently put that project on ice.
• Having a facility capable of hosting large naval vessels west of the South China Sea would be an important element of China’s ambition to expand its influence in the region and strengthen its presence near key Southeast Asia sea lanes.
• The Chinese government denies that it is building an exclusive naval base in Cambodia, consistent with its habit of developing such facilities in secret and then presenting them to the world as a fait accompli.  The Cambodian government also denies the report, probably because the country’s constitution doesn’t permit foreign military bases or presence on Cambodian soil.  Cambodia’s secrecy about the project also appears to reflect its effort to straddle the fence between the U.S. and China as they struggle for geopolitical supremacy.
  • In our recent Bi-Weekly Geopolitical Report, we classified Cambodia not in the “China” political and economic bloc but in the “Leaning Toward China” camp.
  • Consistent with that, the Cambodians continue trying to maintain some ties with the U.S. and its allies, even voting at the UN to condemn Russia’s invasion of Ukraine and supporting the Biden administration’s special U.S.-ASEAN summit last month.
  • Of course, those pro-U.S. moves could simply aim to cover up Cambodia’s growing ties with China.
• China’s aggressive, non-transparent expansion of its military presence will further raise tensions with the West.  Now that Russia’s aggression against Ukraine has taught the U.S. and its allies to coalesce in the face of danger, China’s military development will likely do the same, further fracturing the world into rival geopolitical and economic blocs.  The result will be a greater risk of war, shortened supply chains, higher costs and inflation, lower profits, and fewer good investment opportunities in the future.

China Tech Stocks:  Chinese internet stocks today jumped to a three-month high after regulators cleared dozens of videogames for release, a move investors welcomed as a new sign that Beijing is softening its stance on the technology sector.  Hong Kong’s Hang Seng Tech Index advanced 4.8% to close at its highest level since early March.

Sri Lanka:  Despite months of street protests against him, President Gotabaya Rajapaksa said he would not resign, although he did promise not to run again when his current term in office expires in two years.  The statement likely means that the country’s political unrest will continue for the time being.

Turkey:  President Erdogan has once again vowed to keep cutting interest rates despite the country’s spiraling inflation, prompting yet another big drop in the lira.  At this writing, the currency is trading at approximately 17 per dollar, down 21.6% from the end of 2021.

U.S. Fiscal Policy:  In testimony before Congress yesterday, Treasury Secretary Yellen admitted that high consumer price inflation has been more persistent than she expected.  However, she also tried to shift some of the blame to Congress, saying lawmakers could help moderate the problem by passing measures to reduce prescription drug prices, improve access to affordable housing, and bolster investments in renewable energy.

U.S. Bond Market:  According to one of its top investment officers, hedge fund giant Bridgewater is betting that inflation in the U.S. and Europe will prove far stickier than expected, prompting central bankers to hike interest rates so aggressively that they produce a major economic slowdown and a sell-off in corporate bonds.

• We share some concerns that Bridgewater has.  Against the backdrop of today’s higher bond yields, we have recently increased our allocations to fixed income in our asset allocation strategies that seek yield, but we have emphasized government bonds over corporates.
• We see an elevated risk that the Federal Reserve and/or other major central banks might tighten monetary policy too quickly or aggressively, causing problems not only for corporate bonds but also for equities.
• We note that municipal bonds have recently staged a modest rebound after their sell-off earlier in the year.

U.S. Cryptocurrency Regulation:  Two U.S. senators are reportedly set to introduce a bill that would lightly regulate the digital currency markets while trying to keep alive opportunities for innovation in the space.  However, Congressional aides said the bill has little chance of advancing through the Senate this year. Similar legislation introduced by crypto-friendly lawmakers in the House has languished.

COVID-19:  Official data show confirmed cases have risen to  533,134,707 worldwide, with 6,302,551 deaths.  The countries currently reporting the highest rates of new infections include the U.S., Taiwan, Australia, and Germany.  (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 have risen to 85,008,228, with 1,009,338 deaths.  In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,559,553, equal to 66.7% of the total population.

• In the U.S., the latest wave of infections already appears to be topping out, although hospitalizations are still accelerating with their usual lag.  The seven-day average of newly reported cases has reached 112,771, up 4% from two weeks ago.  The seven-day average of people hospitalized with confirmed or suspected COVID-19 in the U.S. came in at 28,944 yesterday, up 12% from two weeks earlier.  New COVID-19 deaths average 326 per day, down 2% from two weeks earlier.
• Even though the latest U.S. wave appears to be topping out, the CDC said the Omicron subvariants known as BA.4 and BA.5 now represent 13% of new cases in the country, up from 7.5% a week ago and just 1% in early May.  The spread of the subvariants adds more uncertainty to the trajectory of the pandemic in the U.S.
• Citing clinical trials, Moderna (MRNA, $145.34) said its new two-strain COVID-19 booster is safe, well-tolerated, and effective at increasing people’s immunity against the dominant Omicron variant.  The company hopes to roll out the new “bivalent” booster as a fourth dose in late summer.
• AstraZeneca (AZN, $65.58) said a study found its COVID-19 antibody treatment cut the risk of severe disease when given soon after symptoms develop.  The news is likely to pave the way for broader use of the drug.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

We open our Comment today with an update on the Russia-Ukraine war, where the Russians continue to gain small amounts of territory in eastern Ukraine while the Ukrainians stage modestly successful counterattacks.  We next review a range of international and U.S. developments with the potential to affect the financial markets today, and we close with the latest news on the coronavirus pandemic.

Russia-Ukraine:  The Russian military continues to make slow, plodding progress toward its scaled-down goal of seizing Ukraine’s eastern Donbas region and southern coast, but because of continued leadership and operational errors, it also continues to take heavy losses in terms of commanders, troops, and equipment.  In fact, new reporting suggests that not one but two Russian generals were killed in the Donbas region last week, bringing the total number of Russian generals killed in the war to 12.  Meanwhile, Ukraine’s smaller but highly motivated and well-led military continues to carry out successful counteroffensives as it receives more advanced weapons from the West.  As an example of the weapons shipments, reports yesterday said the Spanish government is working to send German-made Leopard tanks and anti-aircraft missiles to Ukraine and help train Ukrainian soldiers to use them.  Separately, it appears Western anti-ship missiles have allowed the Ukrainians to force the Russian navy away from Ukraine’s coast.  According to the Institute for the Study of War, “Ukraine will likely attempt to leverage these successes to alleviate the economic pressure of the Russian blockade on Ukraine’s ports and seek additional economic support from the west, including possibly opening up new routes for international aid to Ukraine.”

• In an interview with the Financial Times, Ukrainian President Zelensky said he could not accept a stalemate in the battle with Russia.  Instead, he reiterated that his war aim is for Ukraine to regain full control of its territory.
• On a less positive note, new reporting suggests the Ukrainians have retaken less of the strategic eastern city of Severodonetsk than was reported yesterday.  Heavy street fighting continues there today.
• In Sweden, the ruling Social Democratic Party managed to defeat a right-wing effort in parliament to dislodge the country’s justice minister, but only after pledging support for Kurdish groups in Syria in order to secure the pivotal vote of a Kurdish legislator.  Given Turkish President Erdogan’s anger at Sweden for its support of the Kurds, the move will likely prolong Ankara’s stonewalling of Sweden’s bid to join NATO.
• Russia’s Foreign Ministry said it would impose sanctions on dozens of U.S. nationals in response to U.S. sanctions on Russians. The list of 61 Americans published by the ministry includes government officials and current and former executives at a range of large U.S. corporations. The ministry didn’t specify what the sanctions would involve.

 Australia:  The Reserve Bank of Australia hiked its benchmark short-term interest rate by an unexpectedly aggressive 50 basis points, lifting the official cash rate to 0.85% from 0.35% previously.  The hike was the RBA’s biggest since February 2000.  After a 25-basis-point hike in May, it also marked the institution’s first back-to-back rate increase since 2010.

• Nevertheless, the policymakers signaled further rate hikes would follow if necessary to tame inflation.  After a period of relatively muted price hikes, inflation in Australia has started to accelerate in response to factors like supply disruptions from the pandemic, the Russia-Ukraine war, and excess demand from pandemic stimulus measures.
• It appears the RBA’s move has given pause to risk markets around the world today, as it serves as a reminder that some central banks could move with unexpected aggressiveness to rein in inflation.  The move is a reminder that unexpectedly big rate hikes and balance sheet reductions could be in the cards, raising the risk of recession.

Japan:  Today, the Cabinet approved Prime Minister Kishida’s first full-year fiscal and economic policy guidelines, but the plans have one glaring omission: they omit previous government pledges to eliminate the country’s fiscal deficit by 2025 and start bringing down its massive debt, which is now more than 200% of Japan’s gross domestic product.

• The plan reflects the influence of important officials largely aligned with former Prime Minister Shinzo Abe.  Some of those officials have also adopted Modern Monetary Theory, which says countries that issue debt denominated in their own currency won’t ever need to default because they can simply print more currency to pay it back.
• Along with the Bank of Japan’s commitment to keep monetary policy extremely loose and cap the Japanese yield curve, the lack of any deficit or debt reduction targets may be contributing to further weakness in the yen so far today.  At this writing, the currency is trading at 132.79 per dollar, its weakest level since early 2002.

United Kingdom:  Prime Minister Johnson survived his party’s confidence vote yesterday, with 211 of the Conservative Party’s members of parliament voting to support him and 148 voting against him.  Under party rules, Johnson now cannot be challenged for another year.

• All the same, the vote was worse than expected for Johnson, leaving him wounded politically for at least the time being.
• The result provides some policy stability for the U.K. for the near term; it also means some contentious issues will not go away soon, particularly his government’s threat to pull out of the Brexit trade deal with the European Union.

Israel:  Prime Minister Bennett’s broad coalition lost a crucial vote in parliament, putting it on the verge of collapse.  The vote, instigated by right-wing former Prime Minister Netanyahu, could set the stage for yet another election in the coming months.

Mexico:  The country’s ruling leftist party, Morena, is on track to win four of the six state governorships contested in elections last Sunday.   The results upset the center-right opposition parties’ recent momentum against left-wing populist President Andrés Manuel López Obrador and will complicate their path to victory in the 2024 elections.

Egypt:  In an example of the inefficiencies likely to arise from deglobalization and the fracturing of the world into rival geopolitical and economic blocs, the Egyptian government is trying to cope with the cut-off of Ukrainian wheat supplies by encouraging more domestic production.  The problem is that agricultural land reclaimed from the Egyptian desert isn’t necessarily that productive.

Middle East-India:  Officials in Saudi Arabia, Qatar, Kuwait, and other Muslim countries in the Middle East have expressed outrage after Indian Prime Minister Modi’s spokeswoman insulted the Prophet Mohammed last week.  Besides raising political tensions, some companies and private citizens have begun boycotts against Indian imports.  The statement has also sparked unrest among India’s own Muslim citizens.

U.S. Real Estate Market:  According to MSCI Real Assets, April commercial real estate sales were down 16% from the same period one year earlier, marking a sharp reversal after 13 straight months of year-over-year increases.

• Hotels, office buildings, senior housing, and industrial properties all recorded significant drops in sales during April.
• Sales of other property types, such as retail and apartments, rose, but analysts and brokers said activity may now be slowing in those sectors, too, as rising interest rates keep some investors from making competitive offers.

COVID-19:  Official data show confirmed cases have risen to  532,444,602 worldwide, with 6,300,269 deaths.  The countries currently reporting the highest rates of new infections include the U.S., Taiwan, Australia, and Germany.  (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 have risen to 84,882,382, with 1,008,858 deaths.  In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,506,997, equal to 66.7% of the total population.

• n the U.S., the latest wave of infections already looks to be topping out, although hospitalizations are still accelerating with their usual lag.  The seven-day average of newly reported cases has reached 98,867, down 8% from two weeks ago.  The seven-day average of people hospitalized with confirmed or suspected COVID-19 in the U.S. came in at 29,229 yesterday, up 15% from two weeks earlier.  New COVID-19 deaths are now averaging 266 per day, down 15% from two weeks earlier.
• In China, both Beijing and Shanghai have now started to relax their latest tough lockdowns against the pandemic, but a new breakout in the Inner Mongolia city of Erenhot has prompted a lockdown there.  Most businesses except supermarkets, pharmacies, and medical centers have been told to suspend operations, and travel in and out of the area has been restricted.
• To overcome the pushback against vaccination by many of China’s elderly citizens, dozens of cities across the country have begun offering people aged 60 and older free insurance that pays out up to $75,000 if they fall ill—or worse—because of vaccine side effects.

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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.  Russian troops continue to make some progress in seizing territory in Ukraine’s eastern Donbas region, but the Ukrainians are also launching some small but successful counterattacks.  We next review a range of in7ternational and U.S. developments with the potential to affect the financial markets today.  We wrap up with the latest news on the coronavirus pandemic.

Russia-Ukraine:  Although Russian forces continue to make some slow, plodding progress in seizing territory in Ukraine’s eastern Donbas region, Ukrainian forces have staged a number of small but successful counterattacks.  For example, Ukrainian troops have reportedly retaken much of the key city of Severodonetsk after Russian forces had seized most of it last week.  Reports also suggest the Ukrainians have been able to kill yet another Russian general in the Donbas region.  Meanwhile, Russian air strikes hit Kyiv over the weekend, after more than a month of relative calm in the capital. The Kremlin claimed it was targeting tanks donated by the West, but the Ukrainian government said the strike actually targeted railroad infrastructure. Finally, Ukrainian President Zelensky yesterday staged a daring visit to his troops in the Donbas.

• Meanwhile, French President Macron has set himself up for continued tension with the Ukrainian leadership by saying in an interview that Ukraine should avoid humiliating Russia in order to keep alive opportunities for compromise.  Ukrainian officials have countered that Macron’s suggestion was a humiliation for France.
• Even as Sweden and Finland have applied for NATO membership in response to Russia’s invasion of Ukraine, the Swedish justice minister today faces a vote of no confidence that could bring down the government.
  • Importantly, an ethnic-Kurdish parliamentarian holds the key to the vote, and she is insisting that the government not give in to Turkey’s demands regarding Kurdish extremists resident in Sweden.
  • Without some compromise on the part of Sweden, there is some possibility that Turkish President Erdogan will continue to hold up Sweden’s application to join NATO.

United Kingdom:  Members of parliament from the Conservative Party today will vote on whether to keep Prime Minister Johnson as their leader after dozens of them submitted letters of no confidence to a special party committee.  The letters mostly reflect anger at Johnson over the “partygate” scandal, in which he allowed parties in leadership offices in violation of the government’s own pandemic rules.  The pound is trading modestly higher today, perhaps on prospects for an end to the scandal, but it’s important to remember that a destabilizing change in leadership would still be a risk in the coming months even if Johnson wins the vote.

• Under party rules, Johnson will have to secure a simple majority of 180 MPs in the secret ballot to stay in office. The prime minister’s allies believe he will easily surpass that total.
• However, even if Johnson wins the confidence vote, such bitterness and breakdown in party discipline are hard for any prime minister to repair. Johnson’s predecessor Theresa May, who survived a confidence vote in 2018, resigned less than six months later.
• One factor that may work in Johnson’s favor is that his opponents haven’t settled on who would replace him.

China-Australia:  In a move possibly aimed at intimidating Australia’s new prime minister, a Chinese jet fighter over the weekend flew close to an Australian maritime surveillance plane over the South China Sea and released anti-missile chaff, which was then sucked into the Australian plane’s engines.  The Australian government lodged a complaint with the Chinese over the dangerous incident, which took place just five days after Prime Minister Anthony Albanese was elected and confirmed in office.

North Korea-South Korea-United States:  In a rare tit-for-tat response after North Korea launched a bevy of missiles on Sunday, the U.S. and South Korea today fired off eight precision surface-to-surface missiles into the Sea of Japan.  In a statement, the U.S. military command in South Korea said the exercise was meant to “demonstrate the ability of the combined U.S.-ROK force to respond quickly to crisis events.

Eurozone Monetary Policy:  As ECB officials prepare to meet this week, they are expected to begin fleshing out a new program that will purchase bonds from the Eurozone’s less financially stable countries if needed to quell market volatility.  The program would act as a kind of insurance policy as the ECB prepares to hike interest rates and cut its overall bond purchases beginning in July.

Germany:  The German government is reportedly making rapid progress in drawing up plans to wean itself off Russian natural gas in the wake of the Russia-Ukraine war.  The government has identified three potential sites for major liquified natural gas terminals.

• Even if those terminals get built, finding available supplies of foreign gas will remain a major challenge.
• Stepping back from Russian gas and scrambling for alternative supplies will contribute to the fracturing of the world into different geopolitical and economic blocs, and it will tend to boost energy prices for the U.S.-led bloc in the coming years.

U.S. Inflation:  In a televised interview yesterday, Commerce Secretary Raimondo said President Biden has ordered his administration to analyze whether it would make sense to cut some of the Trump administration’s tariffs on consumer goods from China to help bring down inflation. Separately, Biden today is expected to announce that he will not impose any new tariffs on Asian solar panels.  However, Raimondo suggested Biden would still keep many of the Trump tariffs on steel and aluminum to protect U.S. factory jobs.

U.S. Corporate Pay:  So far this year, many more large companies are struggling to win shareholder “say on pay” votes.  If votes fail to rein in high executive compensation, some shareholder activists are also voting against directors heading up the companies’ compensation committee.

U.S. Inventories:  As we have long anticipated, consumer purchasing patterns have begun to normalize, leaving many retail companies with excess inventories.  As pandemic lockdowns end and people go back to the office and start traveling again, consumers are shifting more toward formal clothing and service experiences, leaving many firms saddled with excess leisure wear and other goods.  The excess inventories are expected to weigh on retailers’ profits at least through the current quarter.

Global Nickel Market:  A major U.S. hedge fund is suing the London Metal Exchange for more than $456 million over its March decision to cancel nickel trades after a short squeeze produced an unprecedented surge in the price of the metal.  The suit accuses the LME of acting unlawfully “in that it exceeded its powers when it cancelled those trades, or that it exercised the powers that it did have unreasonably and irrationally.”

COVID-19:  Official data show confirmed cases have risen to  532,018,824 worldwide, with 6,299,291 deaths.  The countries currently reporting the highest rates of new infections include the U.S., Taiwan, Germany, 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 have risen to 84,762,171, with 1,008,586 deaths.  In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,492,058, equal to 66.7% of the total population.

• In the U.S., the latest wave of infections already appears to be topping out, although hospitalizations are still accelerating with their usual lag.  The seven-day average of newly reported cases has now reached 100,982, down 7% from two weeks ago.  The seven-day average of people hospitalized with confirmed or suspected COVID-19 in the U.S. came in at 28,970 yesterday, up 16% from two weeks earlier.  New COVID-19 deaths are now averaging 267 per day, down 14% from two weeks earlier.
• The latest wave in the U.S. has shifted westward, hitting places like the San Francisco area, while recent pressure eases in Northeast hot spots.
• In China, falling cases in Beijing have prompted local authorities to announce the relaxation of most lockdown requirements.  Starting today, for example, employees can go back to their offices, students will start returning to their schools, and people can start eating at restaurants again.  However, new infections in other key cities serve as a reminder that tough restrictions could again be imposed at any time and in any place.
  • In Shanghai, for instance, officials continue to find a small number of new community transmissions less than a week after the city’s tough lockdown was mostly lifted.
  • In Hong Kong, new infections associated with a popular nightclub district have now grown into the hundreds.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Good morning! Today’s report begins with an update on the Russian invasion of Ukraine. Next, we discuss the latest economic and policy news, including our thoughts on recent Fed comments. Afterward, we review some international stories that could impact markets today and close with our COVID-19 coverage.

Russia-Ukraine update: As the war enters its 100th day, Moscow has more military success, but it appears to be coming at a high cost. According to Ukraine President Volodymyr Zelensky, Russian forces now control one-fifth of Ukraine and continue to make incremental gains in the eastern region. In addition, Russian troops are closer to capturing Severodonetsk and Lysychansk, two major cities in the Russian stronghold Luhansk. Despite Russian gains, Ukrainian troops have recovered much of the region it lost and still pose a significant threat in northern parts of the country. Additionally, Russian military leaders have expressed concern over the lack of forces and the low morale of many of its troops. As a result, it isn’t clear whether or not Russia will be able to sustain the current momentum.

Off the battlefield, Moscow is also finding more hardship. On Thursday, the U.S. expanded its sanctions list to include individuals with ties to Russian President Vladimir Putin. Meanwhile, Russia struggles to find outside backing for its invasion of Ukraine. In the run-up to its attack, Moscow appeared confident that Beijing would support its ambitions to limit the expansion of NATO into Ukraine. However, China has been reluctant to offer any support that could make it a target of U.S. sanctions. Russian shortcomings in the war have led some members of the Chinese elite to push Beijing to abandon Moscow altogether.

It should be noted that the relationship between China and Russia is one of convenience as opposed to one of kinship. The two sides are united in their desire to limit U.S. influence worldwide but have different views on how a new world should look. China would like the international system to remain in place but with reforms. Russia would like the system replaced altogether. The difference in views stems from the fact that China has benefited from the rise in globalization while Russia has not. For example, China’s GDP growth accelerated following its admission into the WTO in 2001, while Russia’s has seen only a modest rise within that same time frame.

Although both China and Russia dislike when the U.S. meddles in their respective affairs (Taiwan, Ukraine, etc.), their strategies to address these issues are different. Russia would prefer to cause chaos to tear the system down. China, on the other hand, prefers to make incremental gains, hoping it will be able to take it over. This conflicting view has become more apparent after the invasion of Ukraine. Beijing supported Russia because it believed Putin when he said it would be quick. However, since the war has gone longer and with higher costs than either side initially thought, Beijing has been reluctant to offer the support Russia desires. As a result, we do not expect China to provide any significant support in the future. If we are correct, this could mean that this war may not be as costly, which should be favorable for the global economy and financial markets.

 Other Ukraine-Russia news 

• Russia announced it would service its debt payments in rubles. The decision could pave the way for default, as the country is due to make a $100 billion foreign bond payment on Friday. On Wednesday, the treasury officially ended the waiver that allowed U.S. banks and individuals to receive debt payments from Russia. There is no sign that a Russian default could adversely impact the international financial system, and we are closely monitoring the situation.
• Russian natural gas supply to Europe remains stable, and there were concerns that the Ukraine war may have damaged one of the gas routes.

U.S. economic and policy news 

• Federal Reserve Vice Chair Lael Brainard has dampened expectations of a possible pause in rate hikes. In an interview with MSNBC, Brainard warned that inflation would need to decelerate and demands need to cool before the Fed considers moderating its current monetary policy. Cleveland Fed President Loretta Mester, a voting member, voiced similar views in a speech. Although the Fed could pause rate hikes this year, it is unlikely to happen unless there is a recession. Rising energy and food prices will likely keep inflation above the Fed’s inflation target of 2% in 2022. Furthermore, it is becoming clear the Fed is looking to see a looser job market, which may mean an unemployment rate above 4%.

 International news 

• OPEC agreed to boost production in July and August by an extra 650,000 barrels a day, up from the planned increase of 400,000. In addition, Saudi Arabia signaled it was willing to offset the shortages from Russia. The move comes amid pressure from Western countries for the oil cartel to ramp up production to help bring down energy prices.

• China is close to developing its most advanced aircraft carrier. The new ship will make it easier for China to expand military operations by sea. The development of these carriers suggests Beijing plans to expand its military presence throughout the Pacific.

Interesting facts

 To keep menu prices down, restaurants have started adding new surcharges to bills to cope with rising input and labor costs.

 COVID-19: The number of reported cases is 530,898,846, with 6,296,311 fatalities. In the U.S., there are 84,545,537 confirmed cases with 1,008,031 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The CDC reports that 749,151,955 doses of the vaccine have been distributed, with 588,223,208 doses injected. The number receiving at least one dose is 258,685,370, the number of second doses is 221,406,167, the number receiving the first booster is 103,641,912, and the number receiving the second booster is 14,264,775. The FT has a page on global vaccine distribution.

• Later this month, regulators are expected to authorize the COVID-19 vaccine for emergency use for children under 5. The decision could make it easier for the country to contain the spread of cases.
• According to the WHO, over two-thirds of the world’s population has had exposure to COVID-19 through infection or vaccine. This level of exposure suggests most people have antibodies needed to fight off the virus.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Optimism about a possible increase in Saudi oil production boosted S&P 500 futures this morning; however, relatively weak private payroll numbers have led to some moderation. Today’s report opens with an overview of the Federal Reserve Beige Book. Next, we give an update on the war in Ukraine. Afterward, we review U.S. economic and policy news and international news. We close with our COVID-19 coverage.

 The Beige Book: All 12 of the Federal Reserve districts remain in expansion, according to the Federal Reserve Beige Book. The publication provides an update on economic conditions for each of the Fed’s regions. Although most areas showed solid growth, four districts reported a moderate slowdown. This weakness in growth was related to consumer pushback against higher prices. That being said, all regions indicated that the labor market remained tight, with half of the districts reporting that firms still have pricing power.

• The latest JOLTS report reinforces the views shared in the Beige Book. In April, Job openings dropped 455,000 from the prior month to 11.4 million. There are almost twice as many job openings as there are available workers. However, the tight labor market suggests that the Federal Reserve still has a long way to go to bring the job market back into equilibrium.
• In other Fed-related news, the Federal Reserve is set to start shrinking its balance sheet this month as it looks to tighten monetary policy to curb inflation. By reducing its holdings of bonds, the Federal Reserve would allow credit spreads to widen, thereby dampening the attractiveness of risky fixed-income securities.

 Russia-Ukraine update: Russian forces are on the verge of taking over two-thirds of the city of Severodonetsk in the eastern region of Luhansk, while, the Ukraine counteroffensive in the northern parts of the country is getting closer to cutting off some of Russia’s supply lines. In other news, the West is still struggling to reach a consensus on how to secure another sanctions package against Moscow. In Europe, Hungary’s insistence that it should be able to sell the Russian oil it refines has led to a deadlock in talks. Meanwhile, officials with the Biden administration are hesitant to include secondary sanctions in its next package due to fears that it will hurt the economy.

Disputes over how to further punish Russia for its invasion of Ukraine highlight the war’s growing divisiveness. Western countries were willing to support Ukraine at the start of the conflict because the war did not adversely impact their constituents. However, as the cost of the war becomes more widespread through higher energy and food prices, Western leaders’ willingness to go to bat for Ukraine is waning. This is seen in the decision by France and Germany to hold talks with Putin over ending Russia’s blockade of the Black Sea.  We suspect European countries, in particular, would like to see this war end sooner rather than later. Nevertheless, we do not think the West is ready to pull its support anytime soon.

At this moment, the West and Russia have both dug in their heels and have no obvious way out of this conflict over Ukraine. The West does not want the world to believe that it is not prepared to back its allies; meanwhile, Russia does not want to appear weak to its rivals. As a result, it is unlikely that either side will divert from its current path without a sudden change in leadership. In other words, barring Putin’s ousting or significant shift in any of the major Western governments, this war will likely persist. We suspect that the environment will continue to have an elevated risk as rising prices, tightening financial conditions, and increasing global uncertainty hinder global growth.

 U.S. economic and policy news

• The U.S. and Taiwan agreed to build closer trade ties. The U.S. decision to build a relationship with Taiwan was partly due to wanting to ensure the region remains autonomous and promote its Indo-Pacific Economic Framework.
  • Although we have mentioned the U.S. uses the economic framework to build closer relationships with other Pacific countries, it is not Washington’s only aim. The U.S. believes the current trade rules established by the 1994 GATT agreement are outdated, and the Indo-Pacific Economic Framework looks to update these guidelines. The Biden administration’s goal is to modernize global trade by establishing rules on digital trade, promoting clean energy initiatives, and improving labor rights.
• Officials within the Biden administration are considering a cap on Russian oil prices. This decision would limit energy revenue for Moscow while also easing some of the supply pressures.
• The Atlantic hurricane season started on Wednesday, and forecasters predict that there will be an above-average number of tropical storms for the seventh consecutive year. The U.S. National Weather Service expects over 21 storms; the average is 14. Tropical storms have led to a surge in commodity prices.

International news

• The U.K. government will allow food makers to use sunflower oil alternatives without changing labels.
• Saudi Arabia has stated that it is prepared to pump more oil if Russian production falls. The move comes after several OPEC countries have debated suspending Russia from the oil production deal, given that sanctions have undercut the country’s ability to meet production targets.
  • Saudi Arabia’s decision to pump more may be related to President Biden’s trip to the Middle East. The president is expected to meet with Saudi Crown Prince Mohammed bin Salman (MBS) during the visit. The two have not yet met due to the prince’s rumored involvement in the killing of Washington Post journalist Jamal Khashoggi. On the campaign trail, Biden stated that he would make Saudi Arabia a pariah in response to its involvement in the murder; however, the war in Ukraine has forced the president to backtrack.
    • Biden’s agreement to meet the MBS suggests the political cost of the war has risen to a level that the president believes is unsustainable for him and his party to remain in power. Thus, the reversal is a sign that the Biden administration is starting to factor in the political cost of the Ukraine war.
  • Croatia is set to join the Eurozone in 2023. The European Commission ruled that the country has met all the criteria needed to join the bloc. As a result of its admission into the Eurozone, Croatia will likely become a more attractive destination for foreign direct investment.

 COVID-19:  The number of reported cases is 530,617,830, with 6,294,337 fatalities. In the U.S., there are 84,440,566 confirmed cases with 1,007,682 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The CDC reports that 744,812,955 doses of the vaccine have been distributed, with 586,008,740 doses injected. The number receiving at least one dose is 258,655,540, the number of second doses is 221,350,544, the number receiving the first booster is 103,535,610, and the number receiving the second booster is 14,066,061. The FT has a page on global vaccine distribution.

• As the U.S. deals with the current surge in COVID-19 cases, research suggests that new variants of the omicron virus will likely cause new waves throughout the summer.
• Pfizer has requested the FDA to clear its vaccine to be authorized for emergency use in children under 5.
• In a setback, Hong Kong has revived COVID-19 restrictions to contain the spread of new sub-variants of Omicron. Patients with mild infections and close contacts will be forced into centralized quarantine.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Today, our Comment opens with an update on the Russia-Ukraine war; Russian forces continue to seize some territory in Ukraine’s eastern Donbas region, and Ukrainian forces continue staging what appears to be a tactical retreat.  We next review a range of international and U.S. developments with the potential to affect the financial markets.  We close with the latest news on the coronavirus pandemic.

Russia-Ukraine:  Russian forces continue to focus on consolidating their control over the Donbas region of eastern Ukraine.  Their superiority in equipment and troop levels allows them to make slow but steady gains.  In addition, it appears Ukraine has made a strategic decision to offer only limited resistance to that effort.  It is probably a measure to preserve its military resources for future counteroffensives against the Russians if, and when, the balance of forces shifts more toward Ukraine’s favor, perhaps after the delivery of more powerful weapons from the West.  Today, the Biden administration plans to announce a new tranche of weapons shipments to Ukraine, including long-range rocket launchers and precision ammunition with a range of up to 80 kilometers.  The announcement of that shipment comes after Ukraine provided the U.S. with assurances it would not use the missiles to attack Russian territory.

• In recent days, alarmist press articles have again highlighted growing “cracks” in the alliance against Russia’s invasion, this time centered on the fact that some countries (such as Germany and France) have misgivings about providing ever more powerful weapons to Ukraine that could prolong the war without guaranteeing a Ukrainian victory, while other countries (such as the U.S., the U.K., and Poland) want to provide such weapons to inflict as much damage as possible on Russia’s military and discourage President Putin from further territorial aggression. However, despite the alarmist tone of the reporting, it’s probably too early to assume the alliance is in danger of fracturing.
  • Military conflicts are so destructive and dangerous that wartime alliances always generate sharp internal disagreements as leaders ponder the opportunities and risks at hand for their own countries. From World War II to the Gulf War, the U.S. has successfully managed such differences within its alliances and coalitions.
  • The risk of destruction in wartime is, at the same time, a glue that can help keep alliances together as leaders ultimately realize they are safer in a coalition than they are striking out on their own.
  • Beyond that, NATO has been singularly successful in cultivating its fundamental unity over the decades, even in peacetime. That can be lost on some national leaders, press pundits, and armchair generals who don’t know what it is to eat lunch every day with colleagues from a dozen different NATO countries in the headquarters cafeteria in Brussels or who have never taken part in a NATO military exercise.  Persistent, intensive, large-scale NATO alliance-building activities have produced a coalition that is probably more resilient than many observers realize (President Putin, for example).   The best proof of that may be that after the end of the Cold War, the NATO alliance merely softened and got flabby rather than disintegrating.  Differences of opinion within the alliance bear watching, but they are still just arguments at this point.  They are probably still far from endangering the allied effort against Russia.
• With Western sanctions pushing down Russia’s oil production, some OPEC members are exploring the idea of exempting the country from its output targets under the OPEC+ deal. Exempting Russia from its targets could potentially pave the way for Saudi Arabia, the United Arab Emirates, and other OPEC producers to pump significantly more crude, something that the U.S. and European nations have pressed them to do in order to help bring down inflation.
• Additional details on yesterday’s sanctions package from the EU indicate the bloc will not only ban most seaborne imports of Russian oil by the end of the year, but it and the U.K. will also ban their insurance companies from covering ships carrying Russian oil anywhere in the world. The move threatens to further complicate Russia’s efforts to bring its crude to market, contributing to a further jump in oil prices so far today.
  • Senior insurance executives have stressed to British and EU officials how hard it is to establish the provenance of oil cargoes on ships.
  • The executives have warned that insurers, fearing they might violate the sanctions, could pull back from covering any ships coming out of a particular port. For example, they might refuse to cover ships coming out of a Russian port, even if it appears to be carrying oil from Kazakhstan.  Such a development could further crimp global oil supplies and drive prices even higher.
• Other Western sanctions on Russia are also increasingly complicating global trade in food commodities. In a summit with EU leaders yesterday, the president of the African Union complained that cutting Russian banks from the SWIFT system for international funds transfers has made it difficult for poor African countries to buy needed food supplies from Russia.  We continue to believe that rising food costs because of the war and other factors could spark widespread hunger or political instability worldwide in the coming months.

Germany:  Police, public prosecutors, and financial regulators yesterday raided the offices of DWS and its majority owner Deutsche Bank (DB, $11.18).  It is part of a probe into whether the asset manager has been engaging in “greenwashing,” i.e., making misleading statements that its assets were invested using environmental, social and governance criteria.

• The Germans launched their probe following a similar action by the U.S. Securities and Exchange Commission, prompted by allegations from a former DWS staffer.
• The probes may signal intensifying scrutiny of asset managers going forward.  In an environment where ESG criteria can be vague, fluid, and inconsistently applied, those who have gotten out too far over their skis in making ESG claims could face high regulatory and reputational risk.

United Kingdom:  Britons today are prepping for a four-day celebration of Queen Elizabeth II’s platinum jubilee.  The holiday will mark the queen’s 70 years on the throne, a record in a royal dynasty that stretches back over a thousand years.

• The celebration will include all the pomp and ceremony associated with a British royal event.
• There will be a military parade, street parties, a pop concert outside Buckingham Palace, and a religious service at St. Paul’s Cathedral.

Mexico:  After years of racking up debts to its suppliers, state-owned oil giant Pemex said it would offer to pay back about $2 billion it owes to big-ticket suppliers using new debt.  The notes would pay a coupon of 8.75% and mature in 2029, potentially benefitting major service providers like Schlumberger (SLB, $45.96) and Halliburton (HAL, $40.50).

Sri Lanka:  Illustrating the country’s worsening economic and political crisis, the government has begun applying for food donations from a regional food bank that supplies rice and other staples to member states during food crises.  Severe shortages of essential goods have wracked the country, which defaulted on international debts of more than $50 billion last month since it effectively ran out of foreign reserves.

U.S. Monetary Policy:  Neither the White House nor the Federal Reserve provided any details on yesterday’s meeting between President Biden and Fed Chair Powell, other than National Economic Council Director Deese’s statement that it was “a very constructive meeting focused on the outlook for the U.S. and the global economy.”  If anything, reports prior to the meeting underscored that both Biden and Powell remain intent on bringing down consumer price inflation rapidly.

• With the Fed driving up bond yields and stocks sliding, individual investors poured a net $20 billion into mutual and exchange-traded funds that focus on U.S. Treasury securities over the four-week period ended May 25. It marked the largest such infusion in records going back 29 years.
• At the same time, some investors are starting to buy heavily beaten down small-cap stocks, although that could well prove to be premature given the way rising inflation and higher interest rates have increased the risk of recession in the coming quarters.

U.S. Cryptocurrency Markets:  Amid the latest pullback in digital currency values, lawsuits over investment losses are picking up around the country.

• Many of the cases have been fueled by investors who allege some digital coins were hyped and sold under false pretenses. Some proposed class-action suits allege pump-and-dump schemes involving celebrity promoters.
• Others allege that some digital tokens are unregistered securities or that cryptocurrency issuers were deceitful in their marketing.

COVID-19:  Official data show confirmed cases have risen to  530,184,304 worldwide, with 6,292,981 deaths.  The countries currently reporting the highest rates of new infections include the U.S., Taiwan, Germany, 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 have risen to 84,215,080, with 1,007,047 deaths.  In data on the U.S. vaccination program, the number of people considered fully vaccinated now totals 221,292,360, equal to 66.7% of the total population.

• In the U.S., the latest wave of infections already appears to be topping out, although hospitalizations are still accelerating with their usual lag.  The seven-day average of newly reported cases has now reached 98,688, down 2% from two weeks ago.  The seven-day average of people hospitalized with confirmed or suspected COVID-19 in the U.S. came in at 26,512 yesterday, up 16% from two weeks earlier.  New COVID-19 deaths are now averaging 298 per day, down 6% from two weeks earlier.
• Although the CDC only recommends self-isolating for five days after the first appearance of COVID-19 symptoms or a positive result from an at-home test, many people find they continue to test positive for as many as ten days.  In other words, they may still be contagious even after the recommended five-day isolation period.
• In China, authorities in Shanghai today lifted most pandemic restrictions as planned.  Along with dozens of government stimulus programs launched around the country to offset draconian lockdowns, the end of the restrictions in Shanghai offers some hope that the Chinese economy can start growing again, helping buoy Chinese stocks and global commodity prices in recent days.
• In Japan, the government further eased travel restrictions today by allowing people arriving from 98 countries where the coronavirus risk is deemed to be low to be exempt from testing at airports and quarantine.
• In contrast, authorities in Hong Kong said a planned late-June easing of social-distancing rules on pubs and restaurants might be delayed because of recent infections tied to two bar clusters.

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