- Global market focus
- Markets wait to see if tighter restrictions curb the pandemic surge
- Washington political uncertainty continues
Global market focus — U.S. market attention this week will focus on (1) whether the pandemic surge continues and any positive vaccine news, (2) any progress in Washington on a spending or stimulus bill, (3) political uncertainty as the markets wait for finalized presidential election results and the determination of Senate control with the outcome of two run-off elections on Jan 5 for the Georgia Senate seats, (4) indications that President-Elect Biden might name his pick for Treasury Secretary this week, (5) the Treasury’s sale of $193 billion of T-notes on Mon-Tue, and (6) the busy economic schedule on Monday through Wednesday.
In Europe, the focus will be on the economic fall-out from the pandemic surge. Also, Brexit negotiations are coming down to the wire with little time left for parliamentary approvals of any last-minute deal. The tentative schedule would be for EU leaders to approve a deal at a summit on Dec 10-11 and for the EU Parliament to vote on the deal on December 16, although that date could be moved back. The EU Parliament reportedly needs three weeks to study the deal before a vote. The UK Parliament could approve the deal on short notice.
In China, the markets are waiting for any additional actions by the Trump administration against the Chinese government or Chinese companies before Inauguration Day on January 20. China’s Nov PMIs will be released this coming Sunday evening (ET time).
Markets wait to see if tighter restrictions curb the pandemic surge — The markets are waiting to see if the tighter restrictions implemented in the past several weeks will dampen the pandemic surge. Additional restrictions are likely if the pandemic surge worsens since hospitals across the U.S. are already at or near capacity.
The markets will also carefully watch for news of progress on the vaccine front. Pfizer applied for its emergency use authorization last Friday and the country is now awaiting approval and the beginning of vaccinations of medical workers, likely in December.
Washington political uncertainty continues — The political uncertainty in Washington continues with President Trump still disputing the election and with Senate control depending on the two run-off elections in Georgia on January 5. President-Elect Biden’s grip on becoming the next president is strengthening by the day as canvassing and recounts are completed and as states certify their results. However, nothing will be certain until the Electoral College meets to elect the next president on December 14 and until Congress meets to count the votes and determine the winner on January 6. Inauguration Day is January 20.
Meanwhile, control of the Senate in the next session depends on the run-off elections on January 5 for the two Georgia Senate seats. The Senate election results are currently at 50 seats for Republicans and 48 seats for Democrats. If Democrats win both the Georgia seats, then there will be a 50-50 tie, and Vice President-Elect Harris will be able to break the tie in favor of Democrats.
The betting odds at PredictIt.org, for whatever they are worth, give Democrats only a 25% chance of winning both the two Georgia Senate seats and taking control of the Senate. However, that means there is still a 25% chance that Democrats could take full control of Washington, thus allowing blue-wave legislation to proceed, such as higher taxes and a big stimulus bill.
After returning from its Thanksgiving break next Monday, Congress will have to sprint to pass a spending bill to avoid a U.S. government shutdown after December 11, when the current continuing resolution expires. There is the possibility of a government shutdown since President Trump is demanding $2 billion in border-wall funding, which the House Democrats are so far refusing to provide. Congressional budget negotiators are trying to agree on an omnibus spending bill that would fund the government for the remainder of the fiscal year through September 30, 2021. However, if there are any snags, then Congress would be forced to pass another short-term continuing resolution that punts the spending bill into early 2021.
The chances for a large pandemic stimulus bill during the lame-duck session remain slim, although Treasury Secretary Mnuchin said last Friday that he trying to get negotiations restarted. McConnell-Pelosi have so far only restated their highly-divergent positions and have given no indication they plan to budge. It remains possible that Congress might put some pandemic relief measures in the December 11 spending bill.
The Fed last Friday said it would proceed with the Treasury’s decision to allow five emergency programs to expire on December. The Fed also said it will return unused aid money to the Treasury as requested, which Treasury Secretary Mnuchin says will allow Congress to re-appropriate some $580 billion for other stimulus measures. Mr. Mnuchin is using that money to try to get stimulus talks restarted since that money could reduce the burden on the national debt from a new stimulus program. The Fed apparently decided that the Treasury has the legal authority to end the programs and the decided not to fight to keep all the programs open into 2021.
The five emergency programs the Treasury decided to end are the primary and secondary Corporate Credit facilities, Municipal Liquidity Facility, Main Street Lending Program, and Term Asset-Backed Securities Loan Facility. The Treasury asked for a 90-day extension for the other four emergency programs, i.e., Commercial Paper Funding Facility, Primary Dealer Credit Facility, Money Market Liquidity Facility, and PPP Liquidity Facility.
