- Weekly global market focus
- Brexit negotiations deteriorate as UK Parliament considers override of Brexit Withdrawal Agreement
- Congress tries to avoid Oct 1 shutdown, and pandemic bill now appears to be on the back burner
Weekly global market focus — The U.S. markets this week will focus on (1) the FOMC meeting on Tuesday/Wednesday where there is an outside chance that the FOMC will provide more specific interest rate guidance, (2) the U.S. pandemic infection rate, which remains stubbornly high, (3) Washington politics as Congress grapples with the need for a spending bill to prevent a government shutdown on October 1 and as talks remain deadlocked on a pandemic bill, and (4) the Treasury’s sale of 20-year T-bonds on Tuesday and 10-year TIPS on Thursday.
Key U.S. economic reports include Tuesday’s Aug manufacturing production (expected +1.6% m/m after July’s +3.4%), Wednesday’s Aug retail sales (expected +1.0% m/m after July’s +1.2%), and Friday’s prelim-Sep U.S. consumer sentiment index (expected +0.9 to 75.0 after Aug’s +1.6).
There are now only seven weeks left until the November 3 election. The first of the three Trump-Biden debates will be in just two weeks on Sep 29, with the second and third debates on Oct 15 and Oct 22. The only vice-presidential debate will be held in three weeks on Oct 7.
The betting odds at PredictIt.org, for whatever they are worth, are at 60% for a Biden win versus 43% for a Trump win. The betting odds for control of the Senate are at 56% for the Democrats and 47% for the Republicans. The betting odds for control of the House are at 84% for the Democrats and 18% for the Republicans.
In Europe, the markets are focused on the deteriorating Brexit talks. Also, the EU and China today will hold a virtual summit as relations remain on thin ice due to a variety of sticking points including trade, human rights, and Hong Kong.
In Asia, the focus will be on U.S.-China relations as President Trump’s deadline for a Tik-Tok sale arrives tomorrow (Sep 15). There were reports over the weekend that TikTok is now saying that its search algorithm will not be included with the sale due in part to the China government’s new restrictions on the sale of software technology that includes artificial intelligence.
Brexit negotiations deteriorate as UK Parliament considers override of Brexit Withdrawal Agreement — The UK Parliament today will debate Prime Minister Boris Johnson’s Internal Markets Bill, which seeks to protect trade between the UK mainland and Northern Ireland. The bill, if passed and implemented, would be a clear violation of the binding Brexit Withdrawal Agreement and a violation of an international treaty. It is unclear whether Parliament can pass the bill since opposition members are opposed to the bill and some Conservative Party members are opposed as well.
If passed, the bill would further poison the negotiations between the UK and EU for a trade deal. The EU-UK negotiations for a trade deal have made virtually no progress thus far, and would in fact be going backwards if the UK repudiates the Brexit Withdrawal Agreement, in which North Ireland is supposed to remain in the EU single market with a customs border between North Ireland and the British mainland.
Prime Minister Johnson is resorting to hardball as the EU has so far proved immovable on issues such as fishing and a “level playing field.” The EU wants to get an EU-UK trade deal wrapped up in time for its October summit so that there is time for national parliaments to ratify the deal before the transition period ends on December 31. However, a deal seems increasingly far away.
Congress tries to avoid Oct 1 shutdown, and pandemic bill now appears to be on the back burner — The House today returns to Washington from its August recess. The Senate returned to Washington last week.
The main priority for Congress is to pass a continuing resolution to fund the government in the new fiscal year, or else there will be a federal government shutdown on October 1. House Speaker Pelosi and Treasury Secretary Mnuchin two weeks ago announced a verbal agreement to prevent a government shutdown by passing a clean continuing resolution (CR) that simply rolls over current spending levels.
Senate Majority Leader McConnell has reportedly said that he also favors a clean CR. However, the House and Senate have differing ideas on the length of the CR. Senate Republicans want to pass a CR only through December, while some Democrats want to pass a longer CR that lasts into early 2021 after the presidential inauguration in January.
A CR seems likely to get passed by Congress and signed by President Trump by the end of September since no one wants to be blamed for a federal government shutdown just ahead of the November 3 election.
Meanwhile, a new pandemic bill now appears to be delayed until at least after the November 3 election, although there is still an outside chance that Pelosi-Mnuchin could engage in some new talks. The Senate last Thursday failed to approve a Republican $500 billion pandemic bill. The bill was opposed by Democrats, who want a $2.2 trillion bill and opposed some measures in the bill such as a Covid liability shield. The Republican bill failed to get the 60 votes necessary to move forward to an up-or-down vote in the Senate.
The Senate Republicans’ bill last week was less than the Senate’s last offer of $1 trillion. The bill was mainly offered by Senate Majority Leader McConnell as a means so that Republican Senators who face tough reelection fights on November 3 could tell their constituents they voted in favor of another pandemic bill.
