- Hopes emerge for pandemic aid compromise as Mnuchin pitches $916 billion package to Pelosi
- Boris Johnson is stonewalled by unified EU position on Brexit
- U.S. JOLTS job openings expected to lose ground
- 10-year T-note auction to yield near 0.92%
Hopes emerge for pandemic aid compromise as Mnuchin pitches $916 billion package to Pelosi — Treasury Secretary Mnuchin yesterday got himself back into the game by pitching a $916 billion pandemic aid package to Speaker Pelosi. Mr. Mnuchin said that President Trump supports the plan and that he “reviewed” the plan with House Republican leader Kevin McCarthy and Senate Majority Leader McConnell. Mr. McCarthy said it was “a great offer,” but Mr. McConnell gave no indication of support.
The Mnuchin plan includes aid for state and local governments, a critical issue for Democrats. It also contains liability protections for businesses, schools, and universities, a critical issue for Mr. McConnell. No other details about the proposal were made public.
The package would be funded with $569 billion in unused pandemic aid, which would substantially reduce its bottom-line cost, thus making the deal more palatable to debt-averse members of Congress.
The Mnuchin-Pelosi bargaining duo seems to have a much higher chance of success than direct negotiations between Speaker Pelosi and Mr. McConnell, who threw gasoline on the fire yesterday by suggesting that the two sides simply drop their respective demands for state-local aid and liability protections. Ms. Pelosi called Mr. McConnell’s proposal “appalling,” and Senate Minority Leader Schumer accused Mr. McConnell of trying to “sabotage” the ongoing bipartisan talks.
Mr. McConnell seems to view the liability shield as the single most important part of the aid plan and has consistently stuck to his guns on that issue over the past several months. On the brighter side, Senators Angus King and Lindsey Graham are working on a bipartisan liability proposal. Senator King said they hope to produce a compromise bill that “will equally dissatisfy both sides but get us to a place where we can pass the bill because the American people need this bill.”
The pandemic relief bill is being paired with a spending bill, which has created a time-consuming morass. The House today is expected to approve a a 7-day continuing resolution (CR), thus extending the deadline for a U.S. government shutdown from this Friday (Dec 11) until next Friday (Dec 18). That would give Congress an extra week to try to pass a combined omnibus spending bill and pandemic aid bill.
Boris Johnson is stonewalled by unified EU position on Brexit — Prime Minister Johnson is traveling to Brussels to meet with European Commission President Ursula von der Leyen today to see if there is any way around the current deadlock in the Brexit talks. Mr. Johnson may have trouble making any headway because the EU is presenting a united front and is preventing Mr. Johnson from trying to pick off concessions from individual leaders such as German Chancellor Merkel or French President Macron.
In addition, the EU at its 2-day summit that begins on Thursday does not even have Brexit on its agenda, giving Mr. Johnson another indication that national leaders are not going to get involved with the detailed Brexit negotiations.
Mr. Johnson seems willing to blow past the Thursday-Friday EU Summit in an attempt to wrangle some last-minute concessions. The markets still seem to expect a last-minute deal before year-end regardless of the current histrionics. GBP/USD on Monday fell to a 2-1/2 week low but mostly recovered and remains near the top of the October/November rally.
U.S. JOLTS job openings expected to lose ground — The consensus is for today’s Oct JOLTS job openings report to show a decline of -136,000 to 6.300 million, more than reversing September’s +84,000 increase to 6.436 million. Businesses in October likely cut back on looking for new employees due to uncertainty caused by the surge in the pandemic.
Job openings have risen sharply by 1.440 million from April’s pandemic low, but have recovered only 71% of the 2.016 million loss seen during the pandemic. Job openings would have to increase by another 576,000 from the current level to match January’s pre-pandemic level of 7.012 million. Last Friday’s Nov payroll report of +245,000 was substantially weaker than the consensus of +460,000, suggesting that hiring is fizzling out due to uncertainty about the pandemic surge.
10-year T-note auction to yield near 0.92% — The Treasury today will sell $38 billion of 10-year T-notes in the first of two reopenings of the 5/8% 10-year T-note of November 2030 that the Treasury first sold last month.
The 10-year T-note yield yesterday closed slightly lower at 0.92%, which is just 6 bp below last Friday’s 8-3/4 month high of 0.98%. The 10-year yield has been pushing the psychological 1.00% level on expectations for the economy to begin to return to normal in mid-2021 when Covid vaccines become widely available.
The 12-auction averages for the 10-year are as follows: 2.44 bid cover ratio, $9 million in non-competitive bids, 5.3 bp tail to the median yield, 40.5 bp tail to the low yield, and 55% taken at the high yield. The 10-year T-note is mildly below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 60.0% of the last twelve 10-year T-note auctions, which is mildly below the median of 63.1% for all recent Treasury coupon auctions.
