- Stimulus bill talks are dead until at least after the election
- VP debate carries increased importance since remaining presidential debates are in doubt
- FOMC minutes will provide details on new guidance
- 10-year T-note auction to yield near 0.74%
Stimulus bill talks are dead until at least after the election — The U.S. stock market Tuesday afternoon fell sharply after President Trump announced that he had ended the stimulus talks. Mr. Trump tweeted, “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hard-working Americans and Small Business.”
As recently as Saturday, Mr. Trump was urging his negotiators to get a deal done. From his hospital room on Saturday, Mr. Trump tweeted, “OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!”
Mr. Trump’s tweet on Tuesday afternoon ending the talks came after a conference call he had with Treasury Secretary Mnuchin, Senate Majority Leader McConnell, and House Republican leader McCarthy. Mr. Trump was apparently dismayed at what he heard on the conference call about the status of the talks since his tweet ending the talks came shortly after the call. After Mr. Trump’s tweet, the Washington Post reported that Mr. Mnuchin called Ms. Pelosi to officially inform her that the talks were over.
Republicans and Democrats will now take their respective stimulus arguments to the American people at the upcoming election, which is now only 27 days away on November 3. In any case, there is no assurance of a stimulus deal after the election during the lame-duck session since the political acrimony could be even worse than it is now.
The end of the stimulus talks came just hours after Fed Chair Powell again pleaded for more fiscal support, saying, “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses.” Due to the collapse of the talks, there will be no new $1200 stimulus checks, PPP support, increased unemployment aid, airline aid, or a host of other support measures.
VP debate carries increased importance since remaining presidential debates are in doubt — Vice President Pence and Biden-running-mate Senator Kamala Harris will hold their single debate this evening at 9:00-10:30 pm ET in Salt Lake City. The single moderator will the USA Today’s Washington bureau chief Susan Page.
Tonight’s debate has some potential for moving the polls, but not to the extent of a presidential debate. President Trump and former VP Biden are still scheduled to hold two more debates, one next Thursday (Oct 15) and the second one the following Thursday (Oct 22). President Trump has said he will be ready for the debates, but it remains unclear whether the debates will be held in person since Mr. Trump may still be infectious from his bout with Covid. Mr. Biden late yesterday said that there should be no debate if Mr. Trump still has Covid.
The betting odds have moved sharply in Mr. Biden’s favor since last Tuesday’s Trump-Biden debate. The current odds at PredictIt.org, for whatever they are worth, currently favor Mr. Biden by a spread of 31 points (67% for a Biden win, versus 36% for a Trump win), which is 21 points wider than the 10 point spread seen last Monday before the debate (of 57% for Biden versus 47% for Trump). The spread in favor of Mr. Biden widened by 8 points just yesterday, Mt. Trump’s first full day back in the White House, when he torpedoed the stimulus talks.
The betting odds in favor of Democrats taking control of the Senate have also moved sharply in the Democrats’ favor. The current odds at PredictIt.org favor Democrats for taking control of the Senate by a spread of 30 points (67% for Democratic control versus 37% for Republican control), which is 19 points wider than the 11 point spread seen last Monday before the debate.
The betting markets continue to predict that Democratic control of the House is a slam-dunk with the odds at 89% for continued Democratic control of the House versus odds of only 13% for the Republicans.
FOMC minutes will provide details on new guidance — Today’s minutes from the Sep 15-16 FOMC meeting will provide details from the meeting where the Fed decided to adopt its new and dovish interest rate guidance, which came sooner than expected. The FOMC said that rates will remain low until inflation reaches 2% and is on track to “moderately exceed” 2% for some time. The FOMC also said that it would not raise rates until the labor market returns to full employment.
The markets are still expecting no rate hike at least through mid-2022, which is as far out as the federal funds futures contracts are trading. However, the federal funds curve has moved slightly higher by 1-2 bp in the past 1-1/2 weeks due to the stronger odds for VP Biden winning the presidency, which the markets believe could lead to a big increase in fiscal stimulus if Democrats also win full control of Congress.
10-year T-note auction to yield near 0.74% — The Treasury today will sell $35 billion of 10-year T-notes in the second and final reopening of the 5/8% 10-year T-note of Aug 2030 that the Treasury first sold in August. The Treasury will then conclude this week’s $110 billion coupon package by selling $23 billion of reopened 30-year T-bonds on Thursday.
The 12-auction averages for the 10-year are as follows: 2.45 bid cover ratio, $8 million in non-competitive bids, 5.3 bp tail to the median yield, 41.9 bp tail to the low yield, 54% taken at the high yield, and 60.5% taken by indirect bidders (well below the median of 63.6% for all recent coupon auctions).
