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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with multiple geopolitical developments relating mostly to China, Russia, and the Middle East.  In general, the developments point to continued tensions, but that may not be enough to spoil the positive vibe that the quarter’s initial earnings reports seem to be providing today.  We wrap up with the latest news on the coronavirus pandemic.

United States-China:  An unclassified report from the Director of National Intelligence says China is the top threat facing the U.S. and warns that it “will continue its whole-of-government efforts to spread China’s influence, undercut that of the United States, drive wedges between Washington and its allies and partners, and foster new international norms that favor the authoritarian Chinese system.”  The report warns that China is also seeking to at least double its nuclear weapons stockpile during the next decade and will keep pursuing foreign military bases.

• As the Biden administration continues trying to revitalize U.S. alliances to counter China, it is reportedly pressuring Japanese Prime Minister Suga to join with President Biden in issuing a statement of support for Taiwan when he visits the White House on Friday.  If Suga agrees, it would be the first U.S.-Japanese joint statement on Taiwan since 1969.
• A joint Biden-Suga statement would reinforce the recent joint message from U.S. Secretary of State Blinken, U.S. Secretary of Defense Austin, Japanese Foreign Minister Motegi, and Japanese Defense Minister Kishi, which stressed the “importance of peace and stability in the Taiwan Strait.”  However, some Japanese officials worry that another such statement from the level of Biden and Suga would be too provocative and could prompt China to retaliate against Japanese economic interests.

United States-Russia:  In a telephone call between President Biden and Russian President Putin yesterday, Biden proposed a summit between the two leaders in a third country sometime in the coming months.  According to a White House readout of the call, Biden stressed to Putin that the U.S. is committed to Ukrainian sovereignty and territorial integrity, regardless of Russia massing military forces on its border.  Separately, Germany’s defense minister assessed that the Russian military moves are an effort to provoke a Ukrainian or NATO reaction that would justify further incursions into Ukraine.  All the same, it’s important that some administration officials want to cool tensions with Russia so that it is less inclined to support China, and the U.S. can concentrate its energy on Chinese aggression.

United States-Afghanistan:  President Biden today is expected to announce that he will withdraw all remaining U.S. troops from Afghanistan no later than September 11.  In reality, officials said the withdrawal of all U.S. and NATO troops will likely be completed well before the September target date, possibly by this summer.

Iran:  Responding to what was apparently an Israeli cyberattack that knocked out several centrifuges at its Natanz uranium enrichment facility, Iran’s deputy foreign minister said the country would start enriching uranium there to 60% purity, close to the 90% purity required for nuclear weapons.  The announcement appeared to be intended to counter the notion that Iran’s nuclear program had suffered a major setback and to fortify the country’s negotiating hand at the current Vienna talks on restarting its 2015 nuclear limitation deal.

Global Oil Market:  In its monthly report, the International Energy Agency boosted its estimate of global oil demand in 2021 by 230,000 barrels per day (bpd) to a total of 96.7 million bpd, representing a gain of 6.3% from 2020.  The increased forecast came one day after OPEC also boosted its forecast for 2021 demand to a similar amount.  Rising demand, gradually declining inventories, a potential renewed weakening in the dollar, and rising U.S.-Iran tensions continue to buoy oil prices, despite OPEC and its partners recently agreeing to gradually increase their output again.

COVID-19:  Official data show confirmed cases have risen to 137,559,799 worldwide, with 2,962,066 deaths.  In the United States, confirmed cases rose to 31,347,470, with 563,453 deaths.  Vaccine doses delivered in the U.S. now total 245,364,805, while the number of people who have received at least their first shot totals 122,295,530.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S. infections rose to more than 77,000 yesterday, well above both the seven-day moving average of 68,960 and the 14-day moving average of 66,824.  Infection rates continue to rebound in response to factors such as new, more transmissible mutations, the easing of pandemic restrictions, and fatigue over social distancing.  On a more positive note, however, deaths related to the virus came in at just 907, well below the peak levels earlier in the pandemic.  Vaccinations also continue to rise quickly.  As of yesterday, some 36.8% of U.S. residents have received at least one vaccine shot, and 22.7% are fully inoculated.
• A federal advisory panel will meet this afternoon to debate whether and how the vaccine from Johnson & Johnson (JNJ, USD, 159.48) should continue to be used in the U.S., following reports this week of rare but severe blood clots among a few recipients.  Meanwhile, responding to the government’s recommendation for a pause in administering the vaccine, Johnson & Johnson has postponed its planned rollout of the shot to Europe.  Still, the development has raised fears that the recent progress in reducing people’s vaccine hesitancy could be reversed.
• Amid surging infections and hospitalizations, India’s drug regulators have granted emergency approval to Russia’s Sputnik V vaccine, paving the way for both local production and potential imports of the vaccine.  The government also said it would grant emergency authorization to any foreign COVID-19 vaccines approved for use in the U.S., the UK, Europe, or Japan, waiving the previous requirement for time-consuming local “bridging trials.”  Separately, the resurgence of infections in India and renewed lockdowns are again prompting migrant workers to return to their homes in the countryside.
• In Italy, where infections and deaths per capita are also extremely high, a new analysis indicates part of the problem is that regional governments too often failed to prioritize the vaccination of the elderly, leaving them vulnerable.
• In Canada, resurgent infections and a slow vaccine rollout mean that hospitalizations are surging and putting more pressure on the healthcare system than at any other time in recent history.  Hospitals in the country’s most populous province, Ontario, are canceling surgeries, transferring patients, and preparing for the possible need to ration care as they face a surge in COVID-19 patients.

 Economic and Financial Market Impacts

• As the pandemic-driven surge in demand for consumer goods continues, trucking companies are struggling with tight shipping capacity and skyrocketing wage rates for drivers, all of which will likely feed into inflation concerns.

U.S. Policy Response

Overwhelmed state and local authorities are grappling with how to allocate $25 billion in federal rental relief, leaving many tenants and landlords waiting weeks or months for their share.

 View PDF

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

[Posted: 9:30 AM EDT] | PDF

Today’s Comment opens with various items touching on the trajectory of U.S. fiscal and monetary policy.  We next turn to key international news.  Finally, we review the latest developments on the coronavirus pandemic and the U.S. economy.  While news of a potential blood clotting issue with a major U.S. vaccine would be expected to weigh on risk assets today, investors seem to be looking past that issue because of continued fiscal and monetary stimulus and signs that inflation is not yet getting out of hand.

U.S. Fiscal Policy:  In the latest meeting between President Biden and a bipartisan group of lawmakers regarding his proposed $2.3 trillion program of infrastructure and other economic initiatives, the president signaled openness to breaking up the package into smaller parts and considering different ways to pay for it.  However, no final decisions were made about adjustments to the plan.  Overall, the president’s flexibility may increase the odds that he can push a significant package through Congress.  Even if it is scaled back, however, the new spending would likely be a noticeable addition to the fiscal stimulus already working its way through the economy.  It would not only continue to buoy equities but would also keep alive concerns about higher inflation and bond yields.

U.S. Monetary Policy:  In an interview with the Wall Street Journal, Boston FRB President Rosengren insisted that the Federal Reserve’s monetary policy is currently correct for the state of the U.S. economy, and that it would be two years before it even made sense to begin contemplating when to tighten policy.  As with fiscal policy, all indications are that monetary policy will remain extraordinarily stimulative for some time to come.

Global Oil Market:  In its monthly oil market report, OPEC boosted its forecast for global oil demand in 2021 by 190,000 barrels per day to an annual total of 96.27 mbpd.  That figure would represent a 6.5% increase in demand compared with 2020.  In the report, OPEC also boosted its forecast of global economic growth in 2021 to 5.4% from 5.1% previously, reflecting progress against the coronavirus pandemic and massive fiscal and monetary stimulus in key countries.  Still, there is some controversy regarding whether the expected pickup in economic growth and oil demand will be enough to soak up today’s high inventories and a recent decision by OPEC and its allies to gradually ratchet up production.

United States-Taiwan:  The Taiwanese dollar has fallen sharply on growing expectations that the Biden administration will name Taiwan as a currency manipulator in its semiannual bad-boy list later this month.  However, given Biden’s effort to shore up Taiwan against Chinese pressure, many observers believe that even if Taiwan is designated a manipulator, the administration would soft-pedal any sanctions.

China:  Bonds issued by China Huarong Asset Management, China’s largest manager of distressed debt, have fallen to record low values after its former chairman was executed for bribery, and the company said it would delay the release of its financial results.

• Lai Xiaomin, Huarong’s former chair, was executed in January after being found guilty of taking more than $250 million in bribes over a 10-year period.  The sell-off in the company’s bonds reflects uncertainty among investors, including global fund managers, over assets that originated during his leadership.
• Although we have long warned about high Chinese debt levels, the situation at Huarong is a reminder that much of the debt problem also often reflects corruption and poor transparency.

Russia-Ukraine:  In a news conference after meeting with Ukrainian Foreign Minister Kuleba, NATO General Secretary Stoltenberg urged Russia to end its military buildup around its border with Ukraine, calling the buildup “unjustified, unexplained, and deeply concerning.”  Meanwhile, U.S. Secretary of State Blinken, also in Brussels for consultations with allies, warned of costs for Russia if it acts aggressively, without giving specifics.  The statements underline the rising tensions and geopolitical risks in the region.

Japan:  The government has approved releasing more than a million tons of contaminated water from the Fukushima Daiichi nuclear power plant into the Pacific Ocean, sparking condemnation from environmentalists, fishermen, and neighboring countries.  Discharges will start in about two years, subject to final approval by nuclear regulators.

• The plant was damaged by a tsunami in 2011, leading to meltdowns in three of its reactors and forcing its decommissioning.
• Discharge of the water became necessary after storage space filled up.

Afghanistan:  A peace conference scheduled for later this week in Turkey has been postponed after the Taliban backed out of the meeting.  The Biden administration had hoped the Turkey talks would yield a cease-fire agreement and an interim government that include the Taliban, enabling U.S. and NATO allies to withdraw their troops after 20 years.

COVID-19:  Official data show confirmed cases have risen to 136,799,174 worldwide, with 2,948,716 deaths.  In the United States, confirmed cases rose to 31,268,952, with 562,608 deaths.  Vaccine doses delivered in the U.S. now total 237,796,305, while the number of people who have received at least their first shot totals 120,848,490.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections rose to approximately 69,000 yesterday, below the seven-day moving average of 70,040 but higher than the 14-day average of 66,766.  On a brighter note, new deaths related to the virus came in at just 463.  Meanwhile, vaccination efforts remain in place.  The data show that approximately 36.4% of U.S. residents have now had at least one vaccine shot, while 22.3% are fully vaccinated.
• In a decision that could slow the U.S. vaccination program and rekindle vaccine reluctance among the population, the FDA and the CDC this morning called for an immediate pause in using the single-dose vaccine from Johnson & Johnson (JNJ, USD, 161.64) after six U.S. recipients developed a rare disorder involving blood clots within about two weeks of vaccination.
  • All six recipients were women between the ages of 18 and 48. One woman died; a second woman in Nebraska was hospitalized and is in critical condition.
  • While the move was framed as a recommendation to health practitioners in the states, the federal government will pause administration of the vaccine at all federally run vaccination sites.  Federal officials expect state health officials to take that as a strong signal to do the same.
  • The FDA and CDC now will jointly examine possible links between the vaccine and the disorder and determine whether to limit the authorization to use the shot. An emergency meeting of the CDC’s outside advisory committee has been scheduled for Wednesday.
  • The potential problem with the vaccine could slow the country’s vaccination drive and make more people hesitant to get vaccinated.  However, the federal government’s massive orders for competing vaccines from Pfizer (PFE, USD, 36.97) and Moderna (MRNA, USD, 139.40) may mean that overall supplies will still be sufficient, even with a pause in the use of the Johnson & Johnson shot.
• As new infections surge in Michigan, CDC Director Walensky urged Governor Whitmer to shut down the state again instead of asking for more vaccines.  According to Walensky, an unscheduled increase in vaccine deliveries to Michigan would arrive too late to halt its uptick in cases.
• The third wave of the virus in Europe is having a particularly heavy impact on Poland, where conditions now are worse than any other time during the pandemic.
• A new study published in The Lancet found that the B.1.1.7 mutation first identified in the U.K. doesn’t lead to more severe disease among people who are hospitalized, even if it is more transmissible than earlier forms of the coronavirus.  The finding is encouraging because the B.1.1.7 variant is now the dominant form of the virus in the U.S., the U.K., and some other countries.
• Separately, a new study found that an antibody drug from Regeneron (REGN, USD, 472.80) reduced the risk of developing symptomatic COVID-19 infection by 81% compared with a placebo in people living with someone infected by the new coronavirus.
  • The results point to potential new preventive applications for the drug, which has already been used to treat earlier COVID-19 cases.
  • Regeneron said it would ask the U.S. Food and Drug Administration to expand the drug’s authorization among people exposed to the virus who haven’t yet been vaccinated; it could provide temporary stopgap protection as people await vaccines.

 Economic and Financial Market Impacts

• Italian General Claudio Graziano, chair of the EU Military Committee, warned that the pandemic is eroding European military capabilities, not only because of reduced training missions in the short term but also because of the chance that countries suffering a bigger economic hit would cut their defense budgets in future years.
• With the post-pandemic economic recovery already taking hold and government support putting a floor under the economy over the last year, major banks are expected to post healthy earnings growth starting tomorrow.  They are expected to release some of the massive loan-loss reserves they recorded at the peak of the crisis last year.
• In addition to banks, advertising agencies are also expected to post a faster-than-expected recovery from the pandemic.

 View PDF

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

[Posted: 9:30 AM EDT] | PDF

Good morning all, and Happy Monday!  U.S. equity futures are lower this morning, pausing to refresh after a series of new highs.  Our coverage begins with economics and policy.  Amazon (AMZN, USD, 3372.22) avoided a unionization vote in Alabama, and real estate remains hot.  Next up is international news, including an explosion in Iran.  China news follows with new information about Alibaba (BABA, USD, 223.31), and we close with the pandemic update.

Economics and policy:  Amazon prevails; Powell is bullish on the economy, and worries about the labor force continue.

• Workers at the Amazon Bessemer, AL warehouse facility overwhelmingly decided against joining a union. Although we do expect the union to file a challenge to the vote, it was so overwhelming (71% opposed joining) that we doubt the challenge will stick.  The fact that the clear majority of workers opposed joining the union in a company that has faced concerns about the treatment of its workforce may say more about the disenchantment with unions than the working conditions at the company.  We doubt this will be the last attempt the company faces, but without a change in perception about unions, the chances of success for the labor movement remain small.
• Chair Powell on “60 Minutes” last night gave an upbeat view of the economy, saying we were near an “inflection point” in growth. Despite this optimism, the Chair maintains his dovish policy stance.
• In addition to the recent stimulus package and the proposed infrastructure bill, the White House offered an outline of its budget proposals. Although the plan lacked details, overall, the proposed spending continues.
  • One factor the Democrats appear to be banking on is that corporate taxes are so complicated that few on Capitol Hill understand it. This is an underlying complaint from populists; the establishment uses complication to mask its proposals that favor them.
  • At the same time, the business sector is coming out firmly against the proposed corporate tax measures. This opposition will complicate the goal of raising corporate taxes.
• Despite rising vaccination rates, one of the problems in the labor market is the continued slow expansion of the labor force. The JOLTS data show robust job openings, but much slower hires.  Fears of COVID-19 are playing a role in keeping workers home; stimulus checks and generous unemployment insurance are also likely contributing to this trend.
• Housing continues to be a bright spot in the economy, but the sector isn’t without its problems. High demand has hit tight supply, sending home prices soaring.  The best outcome (and the one we expect over time) is a lift in building activity.
  • Millennials are entering the market in large numbers. Like earlier generations, they are moving away from the Northeast and California to the Southwest and Southeast.
• Senator Hawley (R-MO) is out with his trust busting proposals.

International news:  Iran suffers an explosion at a nuclear facility, Brazil is in a difficult situation, and German conservatives are in a political fight.

• Iran’s Natanz facility, where much of its uranium enrichment occurs, was hit with an explosion over the weekend. Although no one has claimed responsibility for the event, it is widely thought that Israel was behind the bombing.  The fact that the attack occurred while discussions surrounding a return to the nuclear deal is probably not just a coincidence.
• The situation in Brazil is deteriorating rapidly. The country has been rocked by new variants of COVID-19, which has increased hospitalizations.  The combination of economic disruption caused by the pandemic and a weaker currency is pushing inflation higher, especially for food.  Inflation is harming the less affluent.
• In Germany, the CDU/CSU coalition is preparing for the autumn elections with new leadership. Chancellor Merkel has anointed Armin Laschet for party leader.  He is considered a rather colorless figure, raising doubts he can carry the party to victory.  Over the weekend, the PM of Bavaria, Markus Söder, declared his candidacy.  He is the leader of the smaller CSU wing of the coalition.  So far, the CDU leadership, loyal to Merkel, has continued to support Laschet to succeed Merkel.  But, CDU polling is weak, and Söder is no doubt a stronger candidate.  If he does get control of the coalition, it would be a clear signal that the Merkel era has ended.
• The U.S. is considering sending warships to the Black Sea in a period of heightened tensions in Ukraine.
  • The U.S. military is growing increasingly worried about the lack of direction from the White House on Afghanistan.
• As protests continue unabated, the Myanmar economy has ground to a halt.
• Amid rising tensions in Northern Ireland, the U.K. and EU report that progress is being made on trade rules.

China:  Regulators corral Alibaba, and more on Taiwan.

• Last year, Ant Financial’s IPO was postponed. Slowly the dust is clearing.  First, the parent of Ant, Alibaba, was hit with a massive fine for antitrust violations.  Perhaps even more important, Ant will be regulated as a financial firm which will severely weaken its profit potential.
• The concerns over human rights issues in Xinjiang have hit textiles; next up may be solar power. The industry is apparently dependent on components from this disputed region.  A key reason for the broader adoption of solar power has been low-cost components from China; if they are restricted, expansion will be adversely affected.
• China’s credit growth fell in March compared to a year ago. Bank loan growth fell from 12.9% to 12.6%.  The PBOC is trying to curtail credit expansion; given the U.S. fiscal expansion, if China is putting on the monetary brakes, it is highly likely the trade deficit with China will expand.
• Research from Australia shows that China’s trade measures have had less effect than expected. Essentially, China is avoiding taking steps that would severely harm economic growth.
• With the EU/China investment pact hanging in the balance, one might expect China’s foreign policy apparatus to take a conciliatory position. That hasn’t been the case, suggesting Beijing either (a) expects the EU to back down or (b) doesn’t care all that much either way.
• New administration guidelines will make it easier for U.S. and Taiwan officials to meet, a measure that will not go over well in Beijing.

COVID-19:  The number of reported cases is 136,141,318 with 2,938,439 fatalities.  In the U.S., there are 31,198,230 confirmed cases with 562,066 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 237,796,105 doses of the vaccine have been distributed with 187,047,131 doses injected.  The number receiving at least one dose is 119242,902, while the number of second doses, which would grant the highest level of immunity, is 72,630,892.  The FT has a page on global vaccine distribution.

Virology

• Although the vaccination data in the U.S. show continued progress, there are growing concerns that, due to vaccine hesitancy, further progress may slow. Essentially, those who were inclined to take the vaccine have mostly been vaccinated.  Those who are reluctant may be the majority of Americans that remain without the vaccine.  If this group remains reluctant, progress will stall, and a vulnerable population will remain, thwarting potential herd immunity.
  • If this is the case, then the most likely outcome is that COVID-19 will remain endemic. That doesn’t mean conditions won’t normalize to some degree.  Vaccinations will probably mean fewer serious cases of the disease.  Progress on anti-viral treatments will reduce the impact too.  And, there is a history of coronaviruses mutating to a less virulent form over time.  However, if this is correct, the odds that we will ever be fully “rid” of COVID-19 are probably low, meaning that we won’t fully return to a pre-COVID world.
• China is finally admitting that its vaccine just isn’t that good. Chinese officials are considering mixing its vaccines with Western ones to improve efficacy.  What is concerning is that Brazil and Chile have been deploying China’s vaccines, and both are facing a resurgence in cases.  If the Chinese vaccine is ineffective, these vaccination efforts have been futile.

 View PDF

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

[Posted: 9:30 AM EDT] | PDF

Good morning.  Equity markets are expected to open higher this morning as Treasury yields will likely drop for a fourth consecutive day.  We begin our coverage with the Alabama warehouse union vote and the Biden administration’s proposal for a global minimum tax.  Next is a news roundup, including economics and policy, international news, and China news.  We also include a summary of COVID-19 developments.

Union vote: The most recent tally from the Amazon (AMZN, $3,299.30) warehouse union election has the tech giant far ahead.  With more than half of the ballots counted, 70% came in against unionization, according to a Wall Street Journal tally.  The vote has been closely watched by policymakers as workers in the Alabama warehouse could potentially be the first Amazon employees to unionize and thus spark a national push for unionization.  So far, the tally suggests that Amazon has prevailed this time, but other warehouses could still look to unionize.

Global minimum tax: On Thursday, the Biden administration released its plan for a global minimum tax that would be applied to all multinational companies across the world.  The tax is seen as an alternative to the current system, which allows countries to levy taxes based on their own laws.  The push for a global minimum tax is designed to dissuade countries from targeting individual industries where they don’t have a vested interest in special taxes.  Most recently, Europe has pushed for a national digital tax which would have disproportionately impacted U.S. Big Tech companies.  In addition, the proposal is also designed to prevent corporate tax avoidance.  The OECD pushed a similar plan last year, with the biggest difference being that the Biden administration’s version would like a 21% minimum tax, while the OECD proposed a 12.5% tax.  That being said, the global tax rate is below the top statutory corporate tax rate for a majority of countries within the OECD.

The Biden administration would like to see an agreement reached sometime this year as it is relying on the revenue from the potential repatriation to fund its infrastructure plan.  At this time, we are pessimistic about whether this is a reasonable timeline.  The U.K. and Ireland will likely push back against the proposal as it will make these countries less attractive for foreign investment.  Additionally, any agreement will likely take a long time to implement as the bill would still need to pass local legislatures.  Financial markets have largely ignored the proposal for that reason.  Nevertheless, as the proposal gains traction we expect to see a stronger market reaction, especially from Big Tech and pharmaceutical companies, which have largely been able to avoid taxes by registering intellectual property rights in low-tax countries.

 Economic and policy news:

• On Friday, the Biden administration is expected to request $715 billion in defense spending over the next fiscal year.  Although the request reflects a 1.2% rise in defense spending, it falls shorts of the amount requested by the preceding administration.  Members of the GOP are expected to push for defense spending.  They believe the current budget is inadequate in dealing with growing threats posed by Russia and China.
• General Motors (GM, $60.09) is expected to halt production of several factories as it struggles to deal with the chip shortage.  Three plants are expected to close or have their output severely reduced.  The chip shortage hasn’t had a major impact on car sales as stimulus checks and increased value for trade-ins have bolstered automotive revenue.  However, this is unlikely to continue if the chip shortage persists.
• During a panel discussion hosted by the International Monetary Fund, Fed Chair Jerome Powell argued that the economic recovery is not helping everyone equally.  He elaborated on this claim by stating that there are still a lot of people who don’t have jobs, and he will do whatever it takes to make sure people don’t feel left behind.  The remarks were taken positively by financial markets.  It suggests the Fed has no intention to raise rates in the foreseeable future.
  • Mary Daly, the CEO of the Federal Reserve Bank of San Francisco, mirrored that sentiment during an interview on Bloomberg Television.
• A report from the CDC shows that suicide rates have dropped by the most in four decades.  The cause for the drop is unknown, but it is speculated that during the early stages of the pandemic, people were more likely to reach out to check on friends and family.
• House Speaker Nancy Pelosi is expected to split the infrastructure bill in half and push each one through Congress before the August recess.  Although she has not ruled out the possibility of pushing the bill through reconciliation, she is believed to be looking for some Republican support, at least for physical infrastructure.

COVID-19:  Official data show confirmed cases have risen to 133,755,255 worldwide, with 2,899,782 deaths.  In the United States, confirmed cases rose to 30,998,579, with 560,065 deaths.  Vaccine doses delivered in the U.S. now total 229,398,685, while the number of people who have received at least their first shot totals to 112,046,611.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Michigan is seeing a surge in COVID-19 cases despite the rise in vaccinations.  Policymakers are starting to become more concerned that vaccines may not be effective in combatting variants of the virus.  So far, 200 vaccinated people in Michigan have been infected by the virus, with three deaths being investigated.
  • Chile has also been dealing with this problem; it is currently coping with a resurgence of the virus.
• More countries have begun scaling back administering the AstraZeneca (AZN, $49.50) vaccine for young people as the vaccine has been linked with causing blood clots.  South Korea, Spain, the Netherlands, Belgium, and Portugal have reserved the vaccine for its older residents, typically aged 60 and up.
• On Thursday, new research from the Center for Disease Control and Prevention contradicted an earlier claim from the previous year.  According to the study, it is highly improbable that a person can contract the virus from surfaces.
• New York City has expanded the amount of COVID-19 cases that would trigger a school closure from two to four cases in a week.  The change has drawn lots of scrutiny as a rise in COVID-19 cases has been linked to school activity, particularly sports.
• COVAX, an entity of the World Health Organization, has dispersed vaccines to over 100 low and middle-income countries within six weeks of beginning its rollout.

 International news:

• Iran released a South Korean ship on Friday after South Korea agreed to release Iranian frozen funds from its bank.  Diplomatic ties have been strained between the two countries after Iran seized a South Korean tanker in the Strait of Hormuz on accusations that the tanker polluted the water.
• U.S. Defense Secretary Lloyd Austin is expected to meet with Israeli officials later today to discuss growing tensions between Israel and Iran.  It is believed that the Israeli Navy carried out an attack on an Iranian spy ship earlier this week.  While Israel claims the attack was retaliatory, it has been suggested the U.S. isn’t convinced.  Israel and the U.S. have been at loggerheads in recent weeks after the Biden administration opened informal talks with Iran regarding its nuclear program, something Israel vehemently opposes.
• Prince Philip, the Duke of Edinburgh, died Friday morning.  He was 99 years old.  His death will mark the start of eight days of official mourning.
• Italian Prime Minister Mario Draghi sparked outrage in Turkey after he labeled Turkish President Recep Tayyip Erdogan “a dictator.”  The comment was made in reference to ill treatment of European Commission President Ursula von der Leyen.  He stated that officials need to be frank with expressing diversity of views, while also be willing to cooperate to ensure the interests of their respective countries.  Turkish officials have criticized the remark as unproductive and have requested it be retracted.
• Tensions between Russia and the Ukraine over Donbas have escalated, with Russia amassing troops near the eastern Ukraine border.  The two sides failed to reach a peace agreement, and it appears that Russian President Vladimir Putin is prepared to invade Donbas in order to gain leverage in negotiations.
• Police in Northern Ireland were forced to break up a riot Thursday as tensions between loyalists and nationalists continue to escalate.  Conflict has risen between the two sides since the conclusion of the Brexit agreement, which created a trade barrier in the Irish Sea.  The barrier has caused difficulty among businesses, as it requires all goods entering Northern Ireland from the U.K. to follow EU customs rules.  As a result, loyalists have called for the protocol governing the deal to be scrapped because they believe it undermines their place in the U.K.

 China:

• China has upped the ante in its attempt to stymie criticism of detention centers in Xinjiang as it prepares to host the Winter Olympics in 2022.  Recently, it has released videos of Uighurs asking their family members living abroad to stop criticizing China and to return home.  China has also targeted critics with sanctions.
• Chinese officials have intensified the crackdown on Jack Ma’s empire by targeting the university he founded, Hupan.  The elite business school has been forced to halt new enrollment following pressure from Beijing.  The former Alibaba (BABA, $228.24) CEO hasn’t been seen since October after his criticism of Chinese regulators.  Chinese officials say the school could be a modern-day Donglin Academy, which was known for allowing open debates and has been credited with bringing down the Ming Dynasty.

 View PDF

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

[Posted: 9:30 AM EDT] | PDF

Good morning all!  U.S. equity futures are mostly elevated this morning in the wake of yet another record S&P 500 close.  We open commentary this morning with the Fed minutes.  Economics and policy follow with corporate taxes in the spotlight.  Pandemic news is next.  China news follows, and we close with our international news roundup.

Fed minutes:  There were no obvious surprises in the minutes from the March 16/17 meeting.  There were expressions of concern about inflation, but it is also obvious that the FOMC intends to keep rates steady at least into 2023.  Although there are comments circulating that the market is starting to discount rate hikes sooner than the FOMC is suggesting, our Eurodollar model suggests that rates are merely normalizing, but it doesn’t appear to us that the rise in market rates is out of the ordinary.

Eurodollar yields reflect both expectations of policy changes and credit risk.  The current spread suggests no rate hikes for two years.

Economics and policy:  Better global growth is coming, and a global corporate tax agreement is being floated.

• The IMF meetings are being held virtually this week; they usually are held in Washington this time of year. Mainly due to aggressive U.S. fiscal action, but also aided by expectations of waning pandemic influence, the group raised its forecast for this year’s global GDP growth to 6%, up from the 5.5% forecast made in January.  Despite this rising growth, the dispersion of growth is also widening; vaccine distribution has mostly been focused on the developed world, meaning that the emerging world economies are mostly lagging.
• Morning Consult, a survey firm, notes in a recent study that states dependent on tourism are lagging in the recovery.
• We usually don’t engage in a deep analysis of proposed tax changes until we are confident that they will be passed. That doesn’t mean we are not paying attention.  For now, we will rely on the work of others in this area.  Here you will find some background on the details of U.S. corporate taxes.  Although the headline focus tends to be on the marginal rate, the bigger battle is in the details.  The U.S. corporate tax code has provisions that tax multinational corporations on their global income.  The idea is that America is the home of a large number of global firms, and merely taxing their U.S. operations allows them to avoid taxes on what may be the bulk of their earnings.  At the same time, most foreign nations also tax these firms on their “domestic” operations.  Thus, there is a complicated set of rules that govern tax credits on foreign taxes paid.  This area is where the controversy lies.  Of course, a major problem is that some nations have low or no corporate taxes.  Firms are, therefore, encouraged to locate some level of operations there, where profits are funneled to further avoid taxes.  One way to address this issue is to create a minimum global standard of taxation; there is some EU support for this idea.  However, for some of these small nations that benefit from the current arrangement, it would be very difficult to get them to sign off on a minimum tax regime.  The bottom line is that we are still a long way from actually seeing tax changes.
  • The tax increases are part of the infrastructure package, which, to be fair, stretches the word “infrastructure” so broadly it really is no longer meaningful. There are two new threats to getting this package passed:
    • The Democrats’ margin in the House continues to narrow. There are currently five vacant seats in the House; three are vacant due to representatives joining the administration.  On April 6, Alcee Hastings (D-FL) died at 84 from pancreatic cancer.  The other vacancy was Ron Wright (R-TX), who passed away from complications tied to COVID-19.  After the November elections, the Democrats held a 222-213 margin; that is now 218-212.  Under House rules, vacancies must be filled by special elections.  Two will be held in May, one in June, one in November, and the Florida one has not been set.  Two of the elections may lead to a switch in parties; the other two are not expected to change.  Currently, there are seven Democrats who hold districts that Trump won in 2020.  For the Speaker, the margin has narrowed to the point where it will make it difficult to pass more radical measures.
    • The narrow margin in the Senate means that White House legislation either needs 10 GOP senators to pass (assuming unanimity among the Democrats) or the passage via budget reconciliation rules. The reconciliation rules do restrict what can be put into a bill (it has to have some relationship to budget matters decided by Senate Parliamentarian).  Several of the proposed measures in the president’s proposal are in danger of not meeting these requirements, which may reduce the scope of the measure.
  • We also note the infrastructure bill includes plans to increase the housing supply. We view this as an important idea if the goal is to narrow wealth inequality.  For the bottom 90% of households, residential real estate is the largest part of wealth.  There is a need for greater supply.  It remains to be seen whether this part of the bill (a) is part of the final version and (b) addresses the issue.
    • An interesting sidelight to the pandemic’s effect on rents is the well-documented drop in the rents in previously fashionable urban areas, but the consequent jump in rents in outlying areas was not initially noticed. The rise is pricing out residents who were living in these areas.
  • Although the concept of shareholder primacy was not directly part of the Reagan/Thatcher revolution, it was sort of a fellow traveler. Shareholder primacy is the idea that companies should be run for the sole benefit of the owners.  Milton Friedman, Michael Jensen, and William Meckling are names most closely tied to the notion.  In the 1930s, Adolf Berle and Gardiner Means argued for a broader responsibility for managers.  Since the late 1970s, shareholder primacy has come to dominate thinking about how corporations should be run.  However, in recent years, there has been a steady shift to the Berle and Means position where managers balance competing interests, including labor, shareholders, stakeholders, and society at large.[1]
    • The latest JP Morgan (JPM, USD, 153.41) shareholder letter makes it abundantly clear that shareholder primacy is on its way out. Instead of maximizing value for shareholders, the stated purpose of a corporation is to be a responsible community citizen.  The recent spate of corporate decisions and comments on political behaviors is part of this trend.
  • The dollar’s share of global reserves has fallen below 60% to 59% in December, the lowest level since 1995. Although the greenback remains the world’s primary reserve currency, there is clear concern about the continued focus on dollars for reserve purposes.  These include rising Treasury debt[2] and the U.S. weaponization of the dollar for foreign policy purposes.
    • There has been an emerging idea that Chinese sovereign debt may be an alternative to Treasuries. The yields are higher and Beijing’s fiscal policy, at least on the surface, looks less risky (although central government debt is not excessive, the real risk is the local government borrowing, and defaults in that sector likely end up on the central government balance sheet).  If this notion catches hold, the reserve currency threat from the CNY will become much more credible.
  • The NY FRB reports that the majority of stimulus checks are being saved or used to pay down debt.
  • The western U.S. appears to be in a deep drought. As summer approaches, this condition raises the possibility of a rough fire season for this region.

COVID-19:  The number of reported cases is 133,250,442 with 2,890,706 fatalities.  In the U.S., there are 30,923,521 confirmed cases with 559,117 deaths.  Both cases and fatalities in the U.S. are declining.  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 225,294,435 doses of the vaccine have been distributed with 171,476,655 doses injected.  The number receiving at least one dose is 109,995,734, while the number of second doses, which would grant the highest level of immunity, is 64,422,618.  The FT has a page on global vaccine distribution.  The Axios state map shows a mixed picture, with the net result of mostly steady infection rates.

Virology

• The AstraZeneca (AZN, USD, 48.42) vaccine situation is becoming a mess. European regulators now admit that there is a blood clotting problem with the vaccine.  It rarely occurs, and given the relative risk of clotting compared to the dangers of the virus, there is a case for continued use.  However, with alternative vaccines available, it’s hard to suggest that it should be widely used.
  • EU nations have responded as expected; the AstraZeneca vaccine is mostly restricted to older recipients. Belgium, Italy, Spain,
  • and the U.K.. are restricting distribution.
  • Romanians are generally refusing to accept the vaccine.
• The EU has essentially banned vaccine exports. India will restart exports in June if the current surge in cases declines.
• The Czech Republic’s inability to control the pandemic has led to the firing of the nation’s health minister. He is the third to be fired since the pandemic began.
• Due to COVID-19, Chile, which was planning on voting on a new constitution, has delayed the election.
• One of the difficulties in examining the impact of the virus is the total fatality count. The data above rely on reports from medical facilities, and, in some cases, the determination of death is difficult.  An alternative method is to look at the normal death rate and see how many “excess” deaths occurred.  Although also imperfect, it can offer a broader estimate of the impact of the pandemic.  For example, if a person committed suicide due to a drug overdose that was partly driven by social isolation, it might be considered a pandemic-related fatality.  A recent study suggests that last year, there were 523,322 excess fatalities and 378,039 directly attributed to COVID-19.
• The Brazil variant (P.1) is starting to spread and is currently hitting British Colombia. It appears to be quite virulent; the most recent outbreak closed a popular ski resort and shut down the Vancouver Canucks of the NHL.  Meanwhile, in the U.S., the U.K. variant (B.1.1.7) is becoming dominant.
• To some extent, the U.S. is facing a race between vaccination and variant spread.
• With vaccine cards becoming the informal vaccine passport, a thriving market for fake or stolen vaccine cards is developing.

China:  Regional tensions remain elevated, and it appears the U.S. is backing down from a boycott of the Olympics.

• Tensions in the first island chain remain elevated.
  • Beijing is warning Japan not to adopt U.S. sanctions over the Uighurs and Hong Kong. It also continues to pressure the Philippines by massing Chinese vessels in its territorial waters.
  • One of China’s diplomatic tactics is to attempt to make all regional relationships bilateral. If it can force each individual nation to negotiate one-on-one, it stands a better chance of dominating the relationship.  The U.S. is a threat to this tactic because it is powerful enough to create a unified response.
  • We note the U.S. has sent the USS Theodore Roosevelt and the associated strike group to the area to bolster defenses.
  • Japan is considering deploying F-35s to its south to defend the disputed Senkaku islands (known by China as the Diaoyu islands).
  • Taiwan is starting its annual war games with one part based on a Chinese invasion. Beijing is repeatedly violating Taiwan’s defense identification zone.
• A boycott of the summer Olympics next year has apparently been considered by Washington. However, the State Department has signaled that a boycott isn’t likely.
• Multinational firms struggle to reduce their China exposure and are increasingly caught between the U.S. and China. China’s size makes avoiding China costly.  We also note that some of China’s most advanced military technology is being built with Taiwan and American technology.  These goods are acquired by purchases through Chinese private tech companies.
  • A recent Chinese hack of Microsoft (MSFT, USD, 249.90) shows signs that it was facilitated by earlier data gathering. If so, China may have built a database of personal information that it is weaponizing for cyberattacks.
• One of the more interesting developments for Chinese society is that the one-child policy will soon lead to a situation where most Chinese children won’t have much of an extended family. Only children for generations are those who eventually lack aunts and uncles.  It is unclear what sort of impact this will have, but a recent report by Eberstadt and Verdery explores the issue.  On a related issue, China is expected to release data from its 2020 census soon.

International news:  Our roundup.

• Myanmar’s junta is considering extending military rule for up to two years as the government tries to cope with continued unrest.
• The U.S. is considering retaliation against Russia for its recent cyberattacks and other nefarious activities. The EU should take notice; the Biden administration is considering appointing a special envoy to thwart the NordStream 2 pipeline.

 View PDF

---

[1] The ESG movement would be part of this idea.

[2] This is nothing new, BTW.  The Triffin dilemma, which discussed this problem, emerged in the 1960s.

 

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

[Posted: 9:30 AM EDT] | PDF

Today’s Comment opens with various observations concerning monetary and fiscal policy and their implications for U.S. economic growth.  We next look at the new report of a possible U.S. and allied boycott of the 2022 Winter Olympics in Beijing over China’s mistreatment of its Uighur minority.  We also note ominous troop and equipment movements by Russia along its border with Ukraine.  We wrap up with the latest developments regarding the coronavirus pandemic.

U.S. Fiscal Policy:  Jeff Bezos, the Chief Executive of Amazon (AMZN, USD, 3,223,82), threw his weight behind President Biden’s plan to hike corporate taxes and unleash massive new spending on infrastructure and other economic investments.  In a memo to his employees, Bezos wrote, “We recognize this investment will require concessions from all sides—both on the specifics of what’s included as well as how it gets paid for . . . [Amazon] is supportive of a rise in the corporate tax rate.”

• Separately, new reports indicate that the roughly $213 billion for affordable housing in Biden’s proposed infrastructure plan includes a competitive grant program aiming to coax state and county government into easing restrictions on new home construction.
• The proposal targets so-called exclusionary zoning laws that the administration says have inflated housing and construction costs and have locked families out of areas with more opportunities.

U.S. Monetary Policy:  Dallas FRB President Kaplan said it isn’t yet time for the central bank to pull back on its support of the economy.  However, he also said that when it eventually becomes clear that the coronavirus pandemic is abating and the economy is meeting the Fed’s goals, paring back the Fed’s stimulus measures will be important to keep the recovery on track.

United States-China:  As the Biden administration continues to flesh out its China policy and works to build up a network of alliances in Asia to counter China, it turns out that a coordinated boycott of the 2022 Winter Olympics in Beijing over China’s mistreatment of its Uighur minority is under much more serious consideration than previously realized.  Sources indicate that administration officials, including President Biden himself, have brought up the idea multiple times in meetings with allied governments.  It is not clear what form such a boycott might take, and no firm decision has been made.  In any case, this will add to the growing number of stress points between the U.S. and China, which have the potential to catch investors in the crossfire at some point.

United Kingdom:  The British government launched a new regulatory body aimed at policing allegations of anticompetitive behavior among the world’s largest technology companies.  The new Digital Markets Unit will be tasked with making sure tech giants don’t exploit any market dominance to crowd out competition.  As we’ve often warned, such steps around the world are raising regulatory risks, particularly for major U.S. tech firms.

Iran:  A ship believed to be conducting surveillance for the Iranian military off the coast of Yemen in the Red Sea has reportedly been attacked by limpet mines placed on its hull.  No country has claimed responsibility, but the timing of the attack on the first day of multilateral talks in Vienna aimed at reviving the 2015 nuclear weapons deal with Iran will cast suspicion on Israel and Saudi Arabia, both of which would like to disrupt those talks.

Russia-Ukraine:  Concerns about a new Russian conflict with Ukraine remain elevated after Russia transferred large numbers of troops and heavy weapons close to the Ukrainian border in recent weeks, ostensibly for exercises.  Russian separatists in the breakaway Donbas region have also traded fire recently with Ukrainian military forces, leading to the deaths of several Ukrainian soldiers.  Various theories have been considered as to what President Putin is trying to accomplish with the new tensions, including the possibility that he is trying to test President Biden’s resolve.

COVID-19:  Official data show confirmed cases have risen to 132,557,605 worldwide, with 2,876,192 deaths.  In the United States, confirmed cases rose to 30,847,926, with 556,529 deaths.  Vaccine doses delivered in the U.S. now total 219,194,215, while the number of people who have received at least their first shot totals 108,301,234.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections fell to approximately 61,000 yesterday.  Perhaps just as important, the seven-day moving average of new infections came in at 64,662, falling below the 14-day moving average of 65,224.  Deaths related to the virus came in at 896.
• As expected, President Biden announced yesterday that all U.S. adults should be eligible for COVID-19 vaccines by April 19, speeding up a timeline he set last month.  He also urged Americans to be patient and continue taking precautions against the disease as the vaccine rollout continues and new variants spread.
  • According to administration officials, the new target was set only after consulting with state governments.
  • So far, all states except Hawaii said they will be able to meet the new timeline.
• Despite strongly pressing forward with its vaccination program, the White House said it would not support any mandatory “vaccine passport” or federal vaccination database similar to those being considered in some foreign countries.
• In California, Governor Newsome announced that the state would fully reopen its economy on June 15, assuming there is enough vaccine supply for everyone ages 16 and older, and COVID-19 hospitalizations remain low.  Given the size of California’s economy, the complete removal of pandemic restrictions there will likely give a noticeable boost to the nation’s economic data and corporate finances.
• As a reminder that pandemic trends continue to worsen in some other countries, Tokyo Governor Yuriko Koike said the metropolitan government is preparing to request that Japanese Prime Minister Suga apply quasi-emergency measures to the nation’s capital similar to the state of emergency that it exited on March 21.
• In yet another blow to the vaccine from AstraZeneca (AZN, USD, 49.22), its partner Oxford University paused a small trial of the compound on children and teenagers in response to concerns about the rare blood clotting issues observed among some adults who got the shot.
  • Meanwhile, the Serum Institute of India, the world’s largest vaccine manufacturer, said it would resume exports of the AstraZeneca vaccine in June, as long as domestic coronavirus cases decline.
  • India suspended vaccine exports in March in an attempt to balance surging domestic demand with international orders.
• As the European Medicines Agency continues to review Russia’s Sputnik V vaccine for possible use in the EU, sources say the regulator next week will also begin to investigate whether the clinical trials supporting the vaccine met ethical and scientific standards.  If not, the shot would probably not be approved for use in the EU.  Despite some officials’ assurances that Sputnik V is not needed in Europe, disapproval could exacerbate the current shortage of potential doses in the bloc.  Just as important, disapproval would be a black eye for Russia and increase EU-Russia geopolitical tensions.

 Economic and Financial Market Impacts

• Jamie Dimon, the Chief Executive of JPMorgan Chase (JPM, USD, 152.54), predicted in his widely read annual letter that “euphoria around the end of the pandemic,” high excess savings, enormous fiscal stimulus, and a potential infrastructure program will spark strong economic growth in the U.S. over the coming year.  Indeed, Dimon wrote, “It is possible that we will have a Goldilocks moment — fast growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much).”  In particular, Dimon argued that if this scenario plays out, today’s high valuations for equities would be justified.

 View PDF

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

[Posted: 9:30 AM EDT] | PDF

In today’s Comment, we open with new developments that suggest Democrats in Congress could have more options to push through their economic and tax agendas than previously thought.  Increased fiscal stimulus, rapidly expanding vaccinations, and economic reopening continue to buoy risk markets, as we saw with yesterday’s record highs, even with the risk of higher taxes and coronavirus mutations that could slow progress against the disease.  We also discuss key news from overseas and the latest on the pandemic itself, including the International Monetary Fund’s latest projection of how fast the global economy will recover from the crisis.

U.S. Fiscal Policy:  The Senate’s nonpartisan parliamentarian ruled in favor of a Democratic effort to pass additional legislation through the process of reconciliation, which only requires 50 votes to pass a bill, rather than the 60 needed to overcome a filibuster.  The ruling turns on the idea that any time a fiscal year budget resolution is amended, it can be passed via reconciliation.  That opens the door for Democrats to approve more fiscal measures along party lines in the Senate this year.

• Meanwhile, several Senate Democrats offered proposals on how U.S. companies should be taxed on foreign income and export income and how foreign companies should be taxed on U.S. income.  In some respects, the proposals are more friendly to companies than the plan released by President Biden, but it also leaves some important details for later debate.  Officials in the Biden administration have signaled they are open to a deal regarding taxes to pay for the president’s infrastructure and other plans.
• To create further space for raising revenues, Treasury Secretary Yellen formally proposed a global minimum tax rate on corporations.  The idea is to prevent a race to the bottom on tax rates as different countries try to lure new business.

U.S. Antitrust and Technology Law:  Trade groups representing small hardware stores, office suppliers, booksellers, grocers, and others, along with business groups from 12 cities, are forming a coalition to lobby Congress for stricter antitrust laws, including measures that could force Amazon (AMZN, USD, 3,226.73) to spin off some of its business lines.  The move highlights the growing regulatory risks facing high-flying technology companies.

United States-China-Japan:  In a sign that the Japanese government is willing to help the U.S. pressure China over its human rights record and other transgressions, Japanese Foreign Minister Motegi used a 90-minute phone call with Chinese Foreign Minister Wang to press for improved treatment of ethnic Uyghurs in Xinjiang.  In a statement after the call, the Chinese government warned Japan not to interfere in its internal affairs or be influenced by countries that are “prejudiced against China.”

India-Pakistan:  In back-channel negotiations launched in January and facilitated by the United Arab Emirates, Indian and Pakistani military leaders are preparing the ground for peace talks between the two countries’ prime ministers.  Although peace deals have been discussed between the two nuclear powers in the past, they have faltered.  If the new negotiations lead to a lasting deal, it could have major implications for the geopolitics of South Asia.  For example, not only would a peace deal promote trade ties between India and Pakistan, but it could reduce India’s incentives to work with the U.S. in its competition with China.  Indeed, China may well have played a key role in nudging its ally Pakistan toward better ties with India.

United States-Iran:  Diplomats from Iran, France, Germany, the U.K., Russia, and China will meet in Vienna today to discuss reviving the 2015 deal limiting Iranian nuclear weapons, with the U.S. taking part indirectly from a separate location.

Russia:  Jailed opposition leader Alexei Navalny, who said several other inmates in his quarters have come down with tuberculosis, has himself been moved to a medical ward after complaining of a cough and fever.  Navalny had complained that he was not being afforded medical care by prison authorities, despite growing health issues.  Now, the question arises as to whether the Putin government purposefully exposed him to tuberculosis, hoping he would contract it.

Jordan:  The court of King Abdullah II announced that former crown prince Hamzah, accused of plotting with foreign countries against the government, met with senior members of the royal family and pledged his loyalty.  It’s not yet clear whether the kingdom has really nipped Hamzah’s opposition in the bud or whether it will have continuing issues with Hamzah’s accusations of corruption and incompetence.

Central Bank Digital Currencies:  Today’s Wall Street Journal carries an informative review of China’s effort to create an official digital currency.  For more on the geopolitics of this trend around the world, see our ongoing Weekly Geopolitical Report series here.

COVID-19:  Official data show confirmed cases have risen to 131,907,441 worldwide, with 2,862,885 deaths.  In the United States, confirmed cases rose to 30,786,016, with 555,619 deaths.  Vaccine doses delivered in the U.S. now total 207,891,395, while the number of people who have received at least their first shot totals 107,515,428.  Finally, here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Newly confirmed U.S infections rose to more than 78,000 yesterday, although some of the increase apparently reflected several states catching up after not reporting cases over the Easter weekend.  More encouraging, the seven-day moving average of new infections, at 63,283, is now only slightly above the 14-day moving average of 63,260.  New deaths related to the virus, 603 yesterday, remain much lower than at the beginning of the year.  More than 32% of people in the country have received at least one dose of a vaccine, while almost 20% are fully vaccinated.
• President Biden today will announce that all U.S. adults should be eligible for a coronavirus vaccine by April 19, speeding up a timeline he set last month.  Biden had previously called for states and territories to make all adults eligible for a shot by May 1. The president will also say that the U.S. has surpassed 150 million shots since he took office.
• Moderna (MRNA, USD, 129.91) has struck a deal for 80 million additional doses of its vaccine to be produced by contract drug manufacturer Catalent (CTLT, USD, 105.75).  The expansion will help Moderna reach its goal of supplying an additional 100 million doses to the U.S. by the end of May and another 100 million doses by the end of July, all of which would help ensure that the U.S. has ample vaccine supplies in the coming months.
• Even the U.S. Army is getting into the vaccine game, as it begins small-scale testing of a compound it developed at the Walter Reed Army Institute of Research in Maryland.  Initial results of the study could become available by midsummer. If the data are positive, the Army likely will try to join with a drug company to further test and develop the vaccine.
• British Prime Minister Johnson said the U.K. will begin to relax more public-health restrictions starting next week and remains on course to fully reopen its economy by the summer, in contrast with the worsening picture elsewhere in Europe.
• Ground zero of the pandemic shifted to India on Monday, as it recorded more than 100,000 fresh cases for the first time, topping the daily totals everywhere else in the world.  New infections in India are now even greater than in Brazil.  The Indian government is therefore locking down neighborhoods and restricting travel again, even as it tries to ratchet up its vaccination program.
• North Korea said it would not participate in the Tokyo Olympic Games this summer, citing concerns about the pandemic.

 Economic and Financial Market Impacts

• In its flagship World Economic Outlook publication, the IMF boosted its forecast for global economic growth to 6.0% in 2021, up from 5.5% previously, as the overall recovery from the pandemic proceeds faster than expected.  The organization also boosted its forecast for 2022 to 4.4% from 4.2% previously.
  • U.S. gross domestic product is projected to expand 6.4% this year and regain its pre-pandemic size after an estimated contraction of 3.5% last year. The IMF earlier projected 5.1% growth in 2021.
  • China’s economy is projected to expand 8.4% this year, up from an earlier forecast of 8.1%.
• In China, the government’s effort to get its people spending again got a boost over the three-day traditional tomb-sweeping holiday, with official and private data showing travel back up to pre-coronavirus levels by some metrics.

 View PDF