- Mnuchin-Pelosi appear to be watching stocks as talk suddenly emerges of new stimulus talks
- Presidential campaign is going into the final stretch as next Tuesday’s first Trump-Biden debate arrives
- Durable goods orders expected to show continued improvement
Mnuchin-Pelosi appear to be watching stocks as talk suddenly emerges of new stimulus talks — After Wednesday’s -2.37% plunge in the S&P 500 index, stimulus talks were suddenly back on the agenda on Thursday, helping to push SPX to a modest gain of +0.30%.
President Trump is known to carefully watch the stock market, and Treasury Secretary Mnuchin certainly does not want to be blamed for a stock market plunge this close to the election. Meanwhile, Speaker Pelosi may also be sensitive to weakness in stocks just before the election since she suddenly succumbed on Thursday to pressure from the moderate wing of her party by moving towards a vote next week a new stimulus bill.
Washington politicians on Thursday may also have been moved into some action by vocal pleas this week by numerous Fed officials for more fiscal support. In case it wasn’t clear enough, Fed Chair Powell on Thursday laid out some details by saying that the most urgently needed aid is for small businesses and unemployed persons, of which there are many. Fed Chairs typically stay away fiscal policy discussions, but Mr. Powell clearly believes it is important to cross that line under the present circumstances to try to move Congress into action.
Chicago Fed President Evans on Thursday said, “I don’t think I’m alone in my opinion that we are taking a very serious and unnecessary risk if we do not extend federal assistance to out-of-work households.”
In any case, stock market weakness seems to be the only lever at this point that could force a deal on a new pandemic stimulus bill. Yet, it seems doubtful that the stock market has fallen by enough to cause Washington politicians to move off their positions, although they are least saying they will talk.
Treasury Secretary Mnuchin on Thursday in testimony before Congress said that a pandemic relief package is “still needed.” He said, “If the Democrats are willing to sit down, I’m willing to sit down anytime for bipartisan legislation, let’s pass something quickly.” Bloomberg later reported that Mr. Mnuchin plans to resume talks with Speaker Pelosi to work out a compromise.
Speaker Pelosi on Thursday told her committee chairs to produce a $2.4 trillion pandemic relief package that the House may approve next week. A $2.4 trillion package would be more than the recent demand by Ms. Pelosi for a $2.2 trillion deal, but would be substantially smaller than the $3.4 trillion package that the House passed in May.
President Trump has indicated he might be willing to go as high as $1.5 trillion, which is substantially higher than the recent Senate bill of $650 billion and previous indications that Senate Republicans might go as high as $1 trillion. Yet if Mr. Trump is feeling enough heat ahead of the election, he might be able to force Senate Republicans into compromising at a number somewhere near $1.5 trillion.
At this point, however, all the talk out of Washington sounds more like sound bites for the election rather than any real movement towards a deal. Congress wants to recess to get home to campaign. If a deal doesn’t suddenly happen by next week, then there seems to be little hope for a deal before the Nov 3 election.
Presidential campaign is going into the final stretch as next Tuesday’s first Trump-Biden debate arrives — The presidential election campaign is going into the final stretch with only 39 days left until the November 3 election.
Meanwhile, the first of the three Trump-Biden debates will be held next Tuesday (Sep 29), with the second and third debates on Oct 15 and Oct 22. The only vice-presidential debate will be held in two weeks on Oct 7.
The betting odds at PredictIt.org, for whatever they are worth, were little changed this week. The betting odds are at 57% for a Biden win versus 45% for a Trump win. Some bettors apparently think Trump and/or Biden might not make it to the election since the betting odds for president are rounded out by 4% for Kamala Harris, 2% for Hillary Clinton, and 1% for Mike Pence.
The betting odds for control of the Senate are at 57% 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.
The key to the outcome of the election is whether there is a sweep by one party for the presidency and both houses of Congress. If so, then the markets could be facing a deluge of new legislation, particularly if the party in control of the Senate does away with the filibuster. Yet budget bills can be passed with only a majority vote in the Senate through the budget reconciliation process, which means that a sweep of Washington by a single party could still result in substantial changes in spending and taxes even if the Senate filibuster remains in place.
Durable goods orders expected to show continued improvement — The consensus is for today’s Aug durable goods orders report to show an increase of +1.3% m/m and +1.1% ex-transportation, adding to July’s increases of +11.4% and +2.6% ex-transportation. While durable goods orders have recovered a lot of ground in the past several months, the series is still down -4.8% y/y and is down by -6.1% from the pre-pandemic level seen in February. In some good news for the manufacturing sector, the ISM manufacturing index in August was strong at 56.0, and the new orders sub-index was even stronger at 67.6.
