- Hopes for pandemic aid bill center on Senate bipartisan compromise
- ECB expected to extend its QE program
- EU poised to approve long-term budget and stimulus plan even as Brexit remains outstanding
- U.S. initial claims expected to show backsliding in the labor market
- U.S. CPI expected little changed
- 30-year T-bond auction to yield near 1.76%
Hopes for pandemic aid bill center on Senate bipartisan compromise — Treasury Secretary Mnuchin’s $916 billion pandemic aid proposal on Tuesday was shot down by Democrats, who want to use the $908 billion plan offered by a bipartisan group of Senators as the basis for negotiations. Democrats mainly rejected Mr. Mnuchin’s plan because it dropped a $300 per week supplemental unemployment benefit in favor of giving $600 stimulus checks to many Americans who might still have jobs.
Meanwhile, the bipartisan group of Senators on Wednesday were busy refining the $908 billion package they proposed earlier this week. That plan contains the unemployment benefits and state-local aid that Democrats want. The group on Wednesday proposed a compromise on Senator Majority Leader McConnell’s demand for a Covid liability shield with a proposal that would create a 6-month moratorium for Covid lawsuits and provide employers with an enhanced legal defense against lawsuits. There was no word on whether Mr. McConnell would accept that compromise.
The stock market on Wednesday sagged as investors became concerned about the lack of progress on a stimulus bill and the fact that Washington political leaders are mainly just trading barbs at this point. However, political leaders are likely to get down to brass tacks next week ahead of their plan to leave for the holidays next Friday.
The House yesterday passed a 7-day continuing resolution (CR) that extended the deadline for a U.S. government shutdown from this Friday (Dec 11) until next Friday (Dec 18). The Senate is expected to approve the deal by tomorrow and send it to President Trump for his signature.
ECB expected to extend its QE program — The ECB has already signaled that it will expand its stimulus programs at its policy meeting today. The ECB is being 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 consensus is that the ECB today will boost the size of its pandemic-emergency purchase program (PEPP) to 1.8 trillion euros from the current 1.35 trillion euros, and extend the length of its PEPP and Targeted Long-Term Refinancing Operations (TLTRO) by six months to the end of 2021. The ECB is expected to leave its main refinancing rate unchanged at zero and its deposit rate at -0.50%.
EU poised to approve long-term budget and stimulus plan even as Brexit remains outstanding — There was good news for Europe yesterday when Poland and Hungary agreed on a compromise that will end their veto threat of the European Union’s $2.2 trillion budget and 750 billion euro pandemic stimulus plan. That should allow EU leaders at their 2-day summit that begins today to approve the long-term budget and move ahead with their pandemic stimulus program.
Meanwhile, 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. Mr. Johnson will return to London frustrated that he made no headway in getting EU leaders to give any ground on Brexit.
A Brexit compromise, if there is one, doesn’t seem likely until the last possible day before the real deadline, whatever day that might be. Undoubtedly both sides have their own confidential view of the real deadline, which is based on the time necessary to get the relevant parliamentary approvals in place before December 31 when the transition period expires.
U.S. initial claims expected to show backsliding in the labor market — The consensus is for today’s weekly initial unemployment claims report to show a +13,000 rise to 725,000, taking back some of last week’s -75,000 decline to 712,000. Meanwhile, continuing claims are expected to fall by -310,000 to 5.210 million, adding to last week’s drop of -569,000 to 5.520 million. Relative to the pre-pandemic levels, initial claims are still up by 495,000 and continuing claims are up by 3.821 million.
U.S. CPI expected little changed — The consensus is for today’s Nov CPI to ease slightly to +1.1% y/y from Oct’s +1.2%. The Nov core CPI is expected to be unchanged from Sep’s +1.6% y/y.
While the CPI 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% and finished the day up +1 bp at 1.91%.
30-year T-bond auction to yield near 1.76% — The Treasury today will sell $24 billion of 30-year T-bonds in the first of two reopenings of the 1-5/8% 30-year bond of November 2050 that the Treasury first sold last month. The benchmark 30-year T-bond yield on Wednesday closed at 1.67%, just mildly below November’s 8-3/4 month high of 1.76%.
The 12-auction averages for the 30-year are as follows: 2.36 bid cover ratio, $6 million in non-competitive bids, 6.0 bp tail to the median yield, 82.1 bp tail to the low yield, and 63% taken at the high yield. The 30-year T-bond is mildly above average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 64.2% of the last twelve 30-year T-bond auctions, which is mildly above the median of 63.1% for all recent Treasury coupon auctions.
