- U.S. government shutdown seems unlikely, and negotiations grind on for pandemic aid bill
- U.S. vaccinations expected to start imminently
- Markets wait to see if Sunday is just another soft deadline that Brexit will blow through
- ECB extends its stimulus programs a bit longer than expected
- U.S. consumer sentiment expected to show back-to-back decline
- U.S. PPI expected to show a mild rise
U.S. government shutdown seems unlikely, and negotiations grind on for pandemic aid bill — The Senate yesterday was forced to delay a vote on a 7-day continuing resolution to replace the existing CR that expires today. Several Senators used the short-term CR to showcase their pet causes.
The Senate is generally expected to pass the 7-day CR today, thus averting a partial government shutdown starting on Saturday. Americans are certainly not in the mood for a government shutdown with more than 2,000 people a day dying from Covid.
Meanwhile, negotiations are plodding along on a pandemic aid bill based roughly on the $908 billion plan offered by a bipartisan group of Senators. That bill contains unemployment benefits, another round of PPP funding, and a host of other aid measures.
Senator McConnell’s staff was busy yesterday shooting down any ideas of a compromise on his demand for a Covid liability shield. The liability shield and the amount of aid for state and local governments continue to be the two main sticking points.
House Republican leader McCarthy said yesterday that he doesn’t expect a bill until next week. That seems a likely bet considering that Congress wants to leave Washington by next Friday for the holidays.
U.S. vaccinations expected to start imminently — Covid vaccinations could begin as soon as today after the FDA’s advisory committee late Thursday afternoon recommended the emergency authorization of Pfizer’s vaccine, paving the way for a quick decision by the FDA to move ahead.
The beginning of vaccinations will certainly provide a psychological boost for the American public. However, the vaccines aren’t likely to make a dent in the Covid infection rates until spring 2021 when they become widely available to the general public. The 7-day average of Covid infections is currently at 205,539 and Covid deaths at 2,257, according to data compiled by Bloomberg.
Markets wait to see if Sunday is just another soft deadline that Brexit will blow through — Prime Minister Johnson and European Commission President Ursula von der Leyen at their meeting Wednesday evening in Brussels made no progress but said negotiators would continue talks with a deadline of Sunday. The markets are waiting to see if Sunday is just another soft deadline that the two sides will blow through, stuck on the same issues.
Mr. Johnson does not sound hopeful about a deal as he continues to press for his amorphous demand for UK sovereignty. However, Mr. Johnson cannot politically afford a no-deal Brexit on December 31, and he is likely just engaging in brinkmanship to press the EU into some final last-minute concessions when he will declare victory.
Meanwhile, the EU is likely holding out on any concessions it might be willing to make until the last minute to prevent Mr. Johnson from going back to the well for more.
ECB extends its stimulus programs a bit longer than expected — The ECB on Thursday at its policy meeting boosted its pandemic-emergency purchase program (PEPP) by 500 billion euros to 1.85 trillion euros, right on expectations, and extended the program by 9 months to March 2022, longer than expectations of 6 months.
The ECB also raised the total amount that banks will be allowed to borrow in targeted long-term loan operations (TLTROs) to 55% of their stock-eligible loans from 50% and extended the period of the loans by 12 months to June 2022, 6 months longer than expected.
The ECB was forced to extend its support measures because the Eurozone economy is taking a new hit from the pandemic’s resurgence. The consensus is for Eurozone GDP in Q4 to fall by -2.2% q/q, backsliding after the +12.5% q/q recovery in Q3.
The ECB yesterday cut its forecast for 2021 GDP growth to +3.9% from +5.0%. ECB President Lagarde, in her news conference yesterday, warned about excessive confidence about vaccines, saying that herd immunity will not be reached until late 2021 with a true economic recovery only beginning in early 2022.
U.S. consumer sentiment expected to show back-to-back decline — The consensus is for today’s preliminary-Dec University of Michigan U.S. consumer sentiment index to show a -0.9 point decline to 76.0, adding to November’s -4.9 point decline to 76.9. U.S. consumer sentiment is sagging as the pandemic surge forces more people to stay home and causes states and cities to impose more restrictions.
U.S. PPI expected to show a mild rise — The consensus is for today’s Nov PPI report to increase to +0.7% y/y from Oct’s +0.5%, and for the core PPI to increase to +1.5% y/y from Oct’s +1.1%. Yesterday’s Nov CPI report was unchanged from October on a year-on-year basis, with the headline CPI unchanged at +1.2% y/y and the core CPI unchanged at +1.6% y/y.
While the inflation statistics remain comfortably below the Fed’s +2.0% inflation target, inflation expectations are on the rise. The 10-year breakeven inflation expectations rate on Wednesday climbed to a 1-1/2 year high of 1.93%, although it backed off a little to 1.89% on Thursday.
