- Weekly market focusÂ
- Crunch time arrives for spending and stimulus bills
- Washington political uncertainty continues ahead of Jan 5 run-off elections in Georgia
- Pandemic is worsening but the start of vaccinations offers medium-term hope
Weekly market focus — The U.S. markets this week will focus on (1) the extent of the post-Thanksgiving pandemic surge and the economic fall-out, (2) the prospects for Congress to pass a pandemic aid bill before they leave for their holiday break, (3) continued uncertainty about control of the Senate that depends on the Jan 5 run-off elections in Georgia, (4) the Treasury’s sale this week of 3-year, 10-year and 30-year securities, (5) anticipation of next week’s FOMC meeting, which could produce some fine-tuning of the QE program, and (6) oil prices after OPEC+ last week agreed to increase production by only 50,000 bpd in January versus the original plan for a 1.9 million bpd increase.
This is a very big news week in Europe. Brexit negotiators are hoping to wrap up a deal by Monday night so that the EU at their summit on Thursday and Friday can sign off on the deal and pass it off to the European Parliament for approval before December 31. EU-UK negotiators reportedly made progress on fishing access over the weekend, but there are still obstacles on level playing field issues.
The EU Summit on Thursday must also deal with the critical issue of the EU’s long-term budget and stimulus deal. Poland and Hungary have been holding up a deal over the rule-of-law provisions. However, the other EU members have said they are ready to implement a workaround to exclude Poland and Hungary from aid, if that becomes necessary.
Meanwhile, the ECB, at its meeting on Thursday, is unanimously expected to extend its QE program in order to provide continued support to the Eurozone economy that is taking a hit from new pandemic-related lockdowns. The consensus is that the ECB will increase the overall size of its QE program by at least 500 billion euros and extend the program by at least six months.
In Asia, the focus will remain on whether the Trump administration will launch any new sanctions or other measures against the Chinese government or Chinese companies during Mr. Trump’s remaining days in office through Inauguration Day on January 20.
Crunch time arrives for spending and stimulus bills — Crunch time has arrived for Congress to pass a spending bill by Friday (Dec 11) when the current continuing resolution expires. There will be a partial U.S. government shutdown starting on Saturday if there is no spending bill. Congress is trying to pass an omnibus spending bill that would last through the end of the fiscal year on September 30, 2021. If there are too many snags on an omnibus spending bill, then Congress would be forced to pass another short-term CR and punt a spending bill into early 2021.
There is talk that a 1-week CR may be necessary to extend this Friday’s CR deadline until Friday, Dec 18. The House wants to get a spending bill passed this week and leave Washington for the holiday break. However, the Senate has already planned to be in session until December 18.
Momentum quickly grew last week for passage of the $908 billion pandemic aid bill offered by a bipartisan group of Senators. That bill would extend unemployment benefits past the current expiration on Dec 31, contain another round of PPP aid to small businesses, and provide aid for a variety of other measures. Sticking points continue to be the amount of aid to state and local governments and the liability shield for businesses.
Washington political uncertainty continues ahead of Jan 5 run-off elections in Georgia — Uncertainty about the outcome of the presidential election is dissipating ahead of several key dates, which include (1) tomorrow’s deadline for states to certify their elections and appoint electoral members, (2) next Monday’s (Dec 14) vote by the Electoral College, and (3) Congressional certification on January 6 of the electoral vote.
However, control of the Senate still hangs in the balance ahead of the January 5 run-off elections in Georgia for both of its Senate seats. The Democrats must win both of those seats to take control of the Senate.
The betting odds at PredictIt.org, for whatever they are worth, have improved to 33% for Democrats to take control of the Senate as the two Republican Senate candidates have been hammered for their stock trades. While those odds are low, that also means that there is a 33% chance that Democrats could take full control of Washington and pass their blue-wave agenda.
Pandemic is worsening but the start of vaccinations offers medium-term hope — The markets continue to nervously watch the extent of the post-Thanksgiving pandemic surge. New U.S. Covid infections have risen above 200,000 for the last four consecutive days (Dec 2-5) and reached a record high of 228,419 last Friday, according to data compiled by Bloomberg.
If the surge worsens, then cities and states will be forced to implement new restrictions to keep U.S. hospitals from becoming overwhelmed. Many areas in California are now under a lockdown order due to a critical shortage of ICU hospital beds.
There should be some good news on the vaccine front this week, with NBC News reporting that U.S. vaccinations could begin this Friday if an FDA panel at their meeting on Thursday approves the Pfizer/BioNtech Covid vaccine, as expected. The UK is expected to begin vaccinations next week. However, vaccinations are not expected to put a dent in the pandemic surge until spring when they become widely available to the general population.
