- Weekly global market focus
- Congress votes today on spending and pandemic aid bills
- Moderna vaccinations begin
- Odds are little changed for Georgia Senate seat run-offs
- 20-year T-bond auction to yield near 1.49%
Weekly global market focus — The U.S. markets this week will focus on (1) expectations for Congress to approve the spending and pandemic aid bills before leaving for their holiday break, (2) the pandemic statistics and vaccination news as the markets assess the economic fallout from the current pandemic surge, (3) continued uncertainty about control of the Senate, which depends on the upcoming run-off elections in Georgia on Jan 5, (4) the continued assessment of the impact on the U.S. corporate world of the massive Solarwinds hack, (5) the Treasury’s auction of $63 billion of notes and bonds this week, and (6) a busy U.S. economic schedule during this holiday-shortened week.
In Europe, the focus is on the pandemic and on the Brexit negotiations. The UK is being forced into a tight lockdown due to the spread of what appears to be a mutated version of the Covid virus, which is causing continental Europe to shut down travel with the UK. The Brexit negotiations continue despite the European Parliament’s warning that Sunday was the last day for a deal. EU and UK officials are studying ways that a last-minute deal could be “provisionally applied” if there isn’t enough time for the EU Parliament or UK Parliament to approve the deal before December 31.
In Asia, the focus continues to be on any further measures that the Trump administration might launch against China or Chinese companies in the remaining four weeks of the administration. China last Friday threatened to announce countermeasures against the U.S. for the Trump administration’s announcement last Friday of the blacklisting of another 60 Chinese companies based on what the Trump administration said were national security and human rights grounds.
Congress votes today on spending and pandemic aid bills — Congress on Sunday reached a bipartisan agreement on the spending and pandemic aid bills. Congress on Sunday night was expected to pass a 1-day continuing resolution to keep the government open until midnight Monday, extending the 2-day CR that expired on Sunday night. The House and Senate are both expected to approve the bills on Monday.
The markets will be relieved when Congress finally approves a pandemic aid bill after months of bickering, although passage of the bill has likely already been discounted by the markets. The pandemic aid bill reportedly includes $300 per week of unemployment benefits, $600 stimulus checks, about $330 billion for another round of PPP aid to small business, and a host of aid for other entities and programs. The bill leaves aside the two main contentious issues of state-local government aid and the pandemic liability shield, which will be brought up again in early 2021.
Moderna vaccinations begin — Vaccinations with the Moderna vaccine are ramping up after the FDA last Friday approved the vaccine’s emergency use. The Pfizer and Moderna vaccines are being rolled out mainly to health care workers and nursing homes in the initial stage.
Vaccines are now being given in the U.S., Canada, UK, Russia, and China. The EU may approve the Pfizer vaccine as soon as this week. Bloomberg reports that more than 1.8 million people in five countries have received vaccinations, which is a step in the right direction but equals only 0.023% of the world’s total population of 8 billion. The CDC on Sunday said that the U.S. has administered 556,208 Covid vaccine shots so far.
The Covid pandemic continues to rage in the U.S. with 7-day averages through Saturday of 228,105 for daily new infections and 2,623 for daily deaths.
Odds are little changed for Georgia Senate seat run-offs — The markets continue to closely watch the polls and the betting odds for the upcoming run-off elections for the two Georgia Senate seats that will take place on January 5. If Democrats win both those seats, they will be able to take control of the Senate and will be able to approve at least parts of the blue-wave agenda depending on the status of the Senate filibuster rule.
The polls for the Georgia run-off elections are extremely close and are within the polling errors. The latest poll-of-polls data from FiveThirtyEight, show the Perdue-Ossoff race at 48.9%-48.1%, respectively, and the Loeffler-Warnock race at 48.5%-48.3%. The betting odds at PredictIt.org, for whatever they are worth, are at 73% for Republican control of the Senate after the Georgia run-off elections and 29% for Democratic control. Early voting in Georgia began last week, and turnout is running at a record high.
20-year T-bond auction to yield near 1.49% — The Treasury has a busy schedule this week with its sale of $24 billion of 20-year T-bonds today, $15 billion of 5-year TIPS on Tuesday, and $24 billion of 2-year floating-rate notes on Wednesday. Today’s 20-year T-bond issue was trading at 1.49% in when-issued trading late last Friday afternoon. Today’s auction is the first reopening of the 1-3/8% 20-year T-bond of Nov 2040 that the Treasury first sold in November.
The Treasury just started selling the 20-year T-bond again in May 2020 for the first time since 1986. The 6-auction averages for the 20-year T-bond are as follows: 2.42 bid cover ratio, $2 million in non-competitive bids, 5.8 bp tail to the median yield, 31.8 bp tail to the low yield, and 50% taken at the high yield. The 20-year is mildly below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 62.45% of the last six 20-year T-bond auctions, which is mildly below the median of 63.1% for all recent Treasury coupon auctions.
