by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EST] | PDF

In today’s Comment, we open with the latest developments in the Russia-Ukraine crisis.  There is late-breaking news of the first troop deployments from the U.S. to NATO countries in Eastern Europe.  We follow that with other U.S. and U.S.-related news that could impact financial markets today.  Next up is the international roundup, and we close with our usual pandemic coverage.

Russia-Ukraine-NATO:  In a news conference yesterday, Russian President Putin said last week’s written U.S. and NATO responses to his demand for security guarantees were inadequate. The Spanish newspaper El Pais said the U.S.’s response included an offer to hold talks with Russia on a reciprocal agreement over the deployment of ground-launched missiles or combat forces in Ukraine.  Still, despite Putin’s negative take on the U.S. and NATO documents, he expressed a willingness to continue talks on the matter.  Meanwhile, British Prime Minister Johnson and Polish Prime Minister Morawiecki met in Kyiv with Ukrainian President Zelensky and pledged to send additional weapons and military equipment to help stave off any potential Russian invasion.  Indeed, reports say a new diplomatic initiative is under consideration between Ukraine, Poland, and Britain. All three countries are in talks to sign a trilateral document in the near term.

• In a sign of continuing worries that Russian troops could invade Ukraine from Belarus or Russia itself, the State Department ordered the families of U.S. government employees in Belarus to leave the country.  On top of that, President Biden is directing the Pentagon to deploy more than 3,000 American troops to bolster the defense of European allies.
  • As announced this morning, roughly 2,000 troops from Fort Bragg, N.C., will be sent to Poland and Germany this week.  In addition, about 1,000 troops that are part of a Germany-based infantry Stryker squadron will be sent to Romania.
  • The Pentagon expects to make other moves of forces inside Europe and has ordered several thousand more troops to be on standby to deploy, beyond the 8,500 troops given similar orders last week.
• In yet another sign that the risk of invasion is real, President Zelensky said he has called up additional troops that would boost the size of the Ukrainian army in case it has to fight against Russia.
• Meanwhile, even as there are few signs of panic within Ukraine and much of the economy works normally, some investment activity is already being curtailed, and the value of the currency has dropped some 4% so far this year.

U.S. Labor Market:  After seeing two of its coffee outlets in Buffalo, New York, unionized in December, Starbucks (SBUX, $98.76) now faces unionization drives at dozens of other locations in 19 states.  On Monday alone, workers at 16 more branches filed for union elections with federal labor authorities.

• Part of the success of the union drive at the company is the organizers’ novel strategy targeting individual stores with amenable employees rather than mass organizing efforts.
• All the same, the broadening organization push at Starbucks and this week’s planned re-vote on unionization at an Alabama facility of Amazon (AMZN, $3,023.87) show how today’s labor shortage has shifted the balance of economic power toward workers and away from companies.
• Increased labor power will likely lead to faster wage growth, increased benefits, and more costly work rules over time, which will potentially bolster inflation and weigh on corporate profits if companies can’t pass the higher costs on to their customers.

U.S. Winter Storm:  More than 15 states in a band from New Mexico to Vermont are under winter-weather warnings today as a dangerous snowstorm barrels across central and northeastern parts of the U.S., causing flight cancellations and school closures.

• Heavy snow is expected from the Rocky Mountains to New England, and significant ice buildups are likely on the storm’s southern edge from Texas to central Pennsylvania.
• Parts of Colorado are expected to be hit worst, with high-altitude areas bracing for up to two feet of snow. Swaths of Missouri, Illinois, and Ohio could receive 12 to 18 inches of snow through Thursday.

United States-United Arab Emirates:  The U.S. is sending advanced jet fighters and a guided-missile destroyer to the UAE to help it counter an escalating threat from Yemen’s Houthi rebels after the Iran-backed group recently launched a series of missiles and drones at the Persian Gulf nation.

European Union:  Competition Commissioner Vestager today will outline a new strategy aimed at keeping the EU at the forefront of setting international standards for the technology industry and countering China’s growing influence.

• U.S. and EU officials have grown concerned that China has become successful at lobbying key technology standards-setting bodies, such as the International Telecommunication Union and the International Electrotechnical Commission, in ways that could provide an edge to its local champions.
• As part of the EU’s plans, European officials will work alongside U.S. authorities on a new monitoring system for emerging standards, a method to have a unified position on tech rulemaking. They also plan to use joint resources to ensure start-ups are aware of coming standards while relying on experts to foresee coming technological developments.

United Kingdom:  Prime Minister Johnson’s political position continues to erode after new revelations of social events held at Downing Street and attended by Johnson violating pandemic social-distancing rules.  On top of that, another senior member of parliament in the Conservative Party said he would submit a letter of no confidence in the prime minister and suggested Johnson call a no-confidence vote himself.

Peru:  Following Monday’s resignation of Prime Minister Mirtha Vásquez for what she called a dysfunctional cabinet and indecisive presidential leadership, embattled leftwing President Castillo yesterday announced the third cabinet of his six months in power.

• If approved by the opposition-controlled Congress, Castillo’s new prime minister will be Héctor Valer, a lawyer who has flitted between political parties and was elected to congress for the first time last year. He has no ministerial experience.
• The new finance minister will be Oscar Graham, an economist with years of experience at the finance ministry and the central bank.  Graham appears to be experienced and moderate enough to be warmly embraced, but the broader government’s leftist policy stances will likely keep investors on edge.

Guinea-Bissau:  Reports suggest the government has put down an attempted coup.  If successful, the coup would have been West Africa’s fourth in the last 18 months.

COVID-19:  Official data show confirmed cases have risen to  382,416,296 worldwide, with 5,691,006 deaths.  In the U.S., confirmed cases rose 75,353,925, with 890,928 deaths.  (For an interactive chart that allows you to compare cases and deaths among countries, scaled by population, click he23qwre.)  Meanwhile, in data on the U.S. vaccination program, the number of people who are considered fully vaccinated now totals 211,954,555, equal to 63.8% of the total population.

Virology

• The seven-day average of U.S. hospital patients with a confirmed or suspected coronavirus infection continues to fall, reaching 136,753 yesterday.
• In France, falling Omicron cases have prompted the government to ease numerous social distancing restrictions.  Among the changes, workers will now be allowed to return to their offices full time, and mask mandates will be removed at ski lifts, markets, and other outdoor venues.
• Pfizer (PFE, $53.07) and partner BioNTech (BNTX, $179.60) yesterday formally asked the FDA to authorize the use of their COVID-19 vaccine in children under 5 years old, the last age group without access to the shots.
  • The companies submitted the request even though clinical tests show the two-shot regime was much less effective in preventing symptomatic cases of COVID-19 in children than in adults.
  • If the request is approved, the injection could be available for children aged 6 months to 5 years old in March.
• In Australia, the rapid spread of the Omicron mutation has forced officials to backtrack on plans to reopen the domestic border of Western Australia this week.  The border has now been closed for two years to ensure the province’s important iron ore mines can keep operating.  The border will remain closed indefinitely.

 Economic and Financial Market Impacts

• New analysis shows that the pandemic surge in demand for physical goods has finally begun to retreat, and consumers are spending more on services again.  If that trend continues, as seems likely, it could prompt a rebound in profits and stock values for service firms ranging from restaurants to cruise lines.

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