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COP26 reaches a watered down agreement. Pfizer fights to control the secret of its Covid vaccine recipe. China’s economic data may show its economic rebound is fading faster than expected. Here’s what you need to know today. 

Delegates from almost 200 countries agreed to reduce the use of coal, end "inefficient" fossil-fuel subsidies and boost their climate targets sooner, as United Nations COP26 climate talks wound up. The Glasgow Climate Pact puts the world, barely, on a path to limit the rise in global temperatures to 1.5°C and punts the hardest decisions into the future. But China and India made last-minute objections, seeking the language on coal to be watered down. Success rests on the huge assumption that the biggest polluters — especially China, the U.S. and India — will follow through on their promises to zero out their emissions over the next decades.

Drugmaker Pfizer has delivered around 2 billion shots of its Covid vaccine, which is expected to generate some $36 billion for the company this year. But the vast majority have gone to Americans and Europeans, while the virus still rolls across much of the world. Now, fed up with the inequality, countries led by India and South Africa are pushing a proposal at the World Trade Organization to waive intellectual-property rights for Covid vaccines and treatments. Pfizer executives are now fighting for control of the secret recipe that’s raking in a fortune. Elsewhere Austria has ordered anyone unvaccinated into lockdown as cases surge; China has again defended the Covid Zero policy that has effectively cut it off from the world; and Janet Yellen says controlling Covid is key to lowering inflation.

Asian stocks looked set for a steady open as traders await key Chinese economic data and monitor bond-market volatility triggered by high inflation. Futures for Japan and Hong Kong rose while Australia’s were little changed. Monday brings a deluge of economic data in China that is expected to show the nation’s V-shaped economic rebound is fading faster than expected. Meanwhile, in more bad news for stocks, Asia’s earnings growth slowed considerably in the latest quarter, putting the region’s lackluster markets even further behind their global peers.

Xi Jinping and Joe Biden go into their virtual summit on Monday with Taiwan and China's economic practices set to be discussed, but with a lifting of U.S. tariffs off the table. The aim for both sides is stopping the bilateral relationship from worsening. Meanwhile, U.S. Secretary of State Antony Blinken expressed concerns over China’s continued military, diplomatic, and economic pressure on Taiwan in a phone conversation with Foreign Minister Wang Yi on Friday. And Biden’s approval rating dropped to a new low — more than six in 10 citizens say he has not accomplished much after 10 months in office.

Elon Musk, the world’s wealthiest person, spent  Sunday sparring with U.S. Senator Bernie Sanders, who tweeted a day earlier that “we must demand that the extremely wealthy pay their fair share.” Musk even raised the notion of selling more of his Tesla shares, which would require him to pay taxes on the gains. “I keep forgetting that you’re still alive,” Musk, tweeted in a reply to Sanders. In a subsequent tweet, Musk asked: “Want me to sell more stock, Bernie? Just say the word…” 

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What’s caught our eye over the past 24 hours:

And finally, here’s what Tracy’s interested in today

What if rate hikes are now inflationary? It's a question worth pondering in the week after U.S. inflation came in much hotter than expected. The highest CPI in about three decades has prompted an intense debate about micro (supply issues) versus macro (demand that's been stimulated by central banks and fiscal spending), and with that comes the question of whether the Federal Reserve should raise rates to damp down demand. But as Joseph Wang, the former New York Fed trader who now blogs at FedGuy, points out, there's a risk that increasing interest rates could actually lead to more lending and price pressures through the banks.

As he explains it, post-financial crisis regulation has tended to herd banks into holding U.S. Treasuries and mortgage debt. Moreover, where once banks would have relied on money markets for their funding, today a huge chunk of it comes from retail deposits — essentially the cheapest source of funding. If the central bank raises rates, it tends to increase banks' collective return on assets (interest on reserves) without necessarily doing much to funding costs (ample retail deposits).

Or as he puts it:

"JPM’s latest quarterly report shows even a 1% shift in rates would increase earnings by $6b. Higher rates now directly increase bank earnings, and thus encourage credit creation. This may not necessarily come in the form of loans to businesses, as demand for loans may decline with higher rates. But credit creation could also be loans to the government (buying Treasuries) or home buyers (Agency MBS). A recent JPM earnings call notes that they could easily deploy $200b into Treasuries if rates rise. The new dynamic suggests rate hikes lead to a flatter yield curve, lower nominal rates, and potentially higher inflation through increased credit creation. (Recall, bank security purchases are paid for through the creation of money.)"

Another way of thinking about this is as an extension of the Fed's real rates problem. Even as it tapers its balance sheet and moves toward rate hikes, it could still run into the issue of lower real yields — which would basically mean the market responds to tightening by further easing financial conditions. Obviously, that's not a great place to be if you're a central bank. Even hypothetically.

You can follow Tracy Alloway on Twitter at  @tracyalloway.

— With assistance by Tracy Alloway

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