- Stocks fall as Covid cases rise and Mnuchin douses hopes for a stimulus deal before electionÂ
- Johnson relents on deadline and allows talks to continue
- Unemployment claims expected to continue improving but will be distorted by California
Stocks fall as Covid cases rise and Mnuchin douses hopes for a stimulus deal before election — The U.S. stock market on Wednesday fell after Treasury Secretary Mnuchin said, “At this point getting something done before the election and executing on that would be difficult, just given where we are in the level of details.”
Mr. Mnuchin Wednesday held a 1-hour phone call with Speaker Pelosi and then spent another two hours talking with White House chief of staff Meadows and Senate Majority Leader McConnell, according to reporting by The Hill.
Republicans and Democrats remain far apart on a deal, not just on the top-line amounts but also on whether certain provisions would even be in the bill, such as the Republican’s insistence of a Covid liability shield for businesses.
Mr. McConnell said earlier this week that the Senate vote next week on another limited stimulus bill that includes PPP funding, among other items. However, Ms. Pelosi has already said that bill is a non-starter. The chances continue to look very dim for a deal before the election, which is now in just 2-1/2 weeks.
Meanwhile, the stock market this week has also been undercut by the rising Covid infection rates in the U.S. and Europe. Richmond Fed President Barkin said Wednesday that a rebound in U.S. Covid infections to about 50,000 a day has added “uncertainty” to the economic outlook and may discourage businesses from hiring or investing.
Also, Fed Vice Chair Clarida said that more monetary and fiscal policy support is likely needed as it may take another year to restore pre-Covid GDP levels and that returning to maximum employment will take even longer.
The 7-day average of new Covid infections in the U.S. rose above 50,000 this week, which is up sharply from the 3-month low of about 35,000 seen in early September. The rising Covid infection rate in the past 1-1/2 months has been due to students returning to school, reduced restrictions, and more inside activities as summer ended.
The Covid situation is also worsening in Europe. Europe reported 700,00 new cases last week, bringing the total to nearly 7 million. Italy reported a record 7,332 new Covid infections on Wednesday, and Poland reported a record high in both new Covid infections and deaths. France was forced to impose a curfew in Paris and other cities.
Johnson relents on deadline and allows talks to continue — UK officials on Wednesday indicated that they are willing to continue talks despite Prime Minister Johnson’s recent deadline of today. Meanwhile, EU leaders at their 2-day Summit that begins today are expected to take stock of the EU-UK talks and discuss whether there is any room for compromise. France will come under some pressure to compromise on its demand for the same fishing rights in UK waters that it had before Brexit.
The EU had hoped there would be a Brexit trade deal to approve at today’s summit, which would give national parliaments time to approve the treaty before December 31, when the UK is scheduled to leave the single market.
However, Bloomberg reports that both sides now believe that the real deadline for a deal is the end of October or the first few days of November, meaning that the markets appear to be facing another 2-3 weeks of difficult talks.
The main sticking points continue to be fishing rights, UK state aid rules, and the deal’s enforcement mechanism.
GBP/USD rallied moderately on Wednesday on expectations that EU-UK negotiations will continue and that Prime Minister Johnson will not declare a no-deal Brexit today as he had threatened. GBP/USD on Wednesday closed +0.58%, reversing part of Tuesday’s drop of -0.97%.
Unemployment claims expected to continue improving but will be distorted by California — The consensus is for today’s unemployment claims report to show a continued decline in claims, even though the U.S. labor market as a whole remains in bad shape.
The consensus is for today’s initial unemployment claims report to show a decline of -15,000 to 825,000, adding to last week’s decline of -9,000 to 840,000. Meanwhile, continuing claims are expected to fall by -426,000 to 10.550 million, adding to last week’s decline of -1.003 million to 10.976 million.
Despite the recent declines, initial claims remain 623,000 higher than the pre-pandemic level seen in February. Meanwhile, continuing claims are 9.3 million above the pre-pandemic level, which means that there are still 9.3 million more people on unemployment rolls than there were before the pandemic.
Today’s report will suffer from accuracy problems because California is in the middle of upgrading its unemployment claims system and is not reporting live figures. California today will simply submit the same unemployment figures that were seen in early September before the system was shut down.
