- Stocks fall due to pandemic surge and lack of stimulus bill
- U.S. PPI expected steadyÂ
- Early-Nov U.S. consumer sentiment expected to edge higher
Stocks fall due to pandemic surge and lack of stimulus bill — The U.S. stock market on Thursday faded on the surge in the pandemic combined with the poor prospects for a stimulus bill during the lame-duck session.
The pandemic statistics continue to soar, with new U.S. Covid cases on Thursday reaching a record 152,000, and hospitalizations reaching a record 66,000, according to the Washington Post. The 7-day average of new U.S. Covid cases is at a record 128,537, according to Johns Hopkins. The sharp rise in Covid cases is putting pressure on state and local governments to impose more restrictions as hospitals get near, or reach, capacity.
The markets are now more optimistic that an effective vaccine is on the horizon after news on Monday of the 90% efficacy for Pfizer’s vaccine. Moderna within a matter of days is expected to announce the interim results from its Stage 3 trial, which are expected to be similar to Pfizer’s positive results.
Dr. Fauci yesterday tried to provide some reassurance by saying that Covid won’t be a pandemic for “a lot longer” because of vaccine progress. In the meantime, however, the pandemic is surging and is leading to expectations for weaker economic growth. Fed Chair Powell yesterday said, “with the virus now spreading, the next few months could be challenging” for the U.S. economy.
Meanwhile, the prospects look dim for a stimulus bill during the lame-duck session. Bloomberg reported Thursday that the White House is stepping back from the stimulus negotiations and is now looking to Senate Majority Leader McConnell to negotiate a deal directly with Speaker Pelosi.
Prior to the election, the markets were hoping that Treasury Secretary Mnuchin could negotiate a deal of around $1.9 trillion with Speaker Pelosi and that President Trump would be able to strong-arm Senate Republicans into accepting the deal. However, President Trump’s ability to strong-arm Senate Republicans largely evaporated after he lost last week’s election.
The prospects of a McConnell-Pelosi deal during the lame-duck session do not look promising. Both Pelosi and McConnell this week have restated their highly divergent positions with Mr. McConnell at $500 billion and Speaker Pelosi still at $2.4 trillion. Speaker Pelosi has some motivation to wait to make a deal until she sees if Democrats can win the two run-off elections on January 5 for the Georgia Senate seats, thus gaining control of the Senate and Washington. However, the betting odds of Democrats gaining control of the Senate remain low at 20%, according to Predictit.org.
If Republicans win at least one of the Georgia run-offs and maintain control of the Senate, then Speaker Pelosi in January will be forced to compromise with Mr. McConnnell at a lower stimulus level. However, after Joe Biden takes office on January 20, there is an outside possibility that then-President Biden could take over stimulus negotiations and broker a larger stimulus deal that gives Mr. McConnell other things he might want.
There is also the possibility that at least some stimulus relief could be added to the spending bill that must be passed by December 11 to avoid a government shutdown when the current continuing resolution expires. Ms. Pelosi has opposed any piecemeal passage of stimulus measures, but she may relent during the lame-duck session since she has reinforcements arriving in January when Joe Biden becomes president.
U.S. PPI expected steady — The consensus is for today’s Oct final-demand PPI to be unchanged from Sep’s +0.4% y/y and for the core PPI to be unchanged from Sep’s +1.2% y/y. Yesterday’s Oct CPI report of +1.2% y/y headline and +1.6% y/y core was slightly weaker than expectations of +1.3% and +1.7% and was down from Sep’s report of +1.4% and 1.7%, respectively.
Inflation is expected to remain subdued for at least the next year as the global economy struggles to emerge from the pandemic. Meanwhile, the current low level of inflation is dovish for Fed policy since the Fed has adopted its average-inflation policy where the Fed says it will not raise interest rates until inflation is on its way above the +2% inflation target.
Inflation expectations also remain subdued, although near the upper end of the recent range. The 10-year breakeven inflation expectations rate of 1.72% is just mildly below the early-September 10-month high of 1.82%.
Early-Nov U.S. consumer sentiment expected to edge higher — Today’s preliminary-Nov University of Michigan U.S. consumer sentiment index is expected to show a small +0.2 point increase to 82.0, adding to October’s +1.4 point increase to 81.8.
U.S. consumer sentiment has risen in the past three months (Aug-Oct) as the economy recovers and as stocks hit new highs. However, consumer sentiment may soon start sliding due to the pandemic surge, which is threatening to keep people at home once again. Fed Chair Powell yesterday warned of a tough few months for the economy due to the spike in Covid infections.
On the brighter side, political uncertainty should soon start to die down as the election results fade into the past, and the new Congress and president take office in January. Also, this week’s positive Pfizer vaccine results were very encouraging, and Dr. Fauci yesterday said that Covid will not be a pandemic for “very much longer.”
