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  • Markets wait to see how much of Biden’s $1.9 trillion pandemic aid package can get past Senate Republicans
  • U.S. retail sales and consumer sentiment expected to remain weak
  • U.S. manufacturing production expected to show another increase in December


Markets wait to see how much of Biden’s $1.9 trillion pandemic aid package can get past Senate Republicans
 — President-Elect Biden yesterday proposed a $1.9 trillion pandemic aid package, which was even larger than Leader Schumer’s request for a $1.3 trillion package.  The markets were initially taken aback by the size of the package, but the surprise wore off as market participants recognized the obstacles that Mr. Biden will face in getting the bill passed.

The Democrats will have control of the Senate possibly as soon as next Wednesday when Biden-Harris are sworn in, making VP-Elect Harris the president of the Senate.  However, the exact timing also depends on exactly when the incoming Georgia Senators Warnock and Ossoff are sworn in to their Senate seats.  

The Georgia Senators could take their seats as soon as next Wednesday, although there might be a delay until Thursday or Friday since next Friday is the deadline for Georgia to certify the Senate seat elections.  RollCall reports that Georgia election officials say they are on track to certify the Georgia election results by Jan 20, which means the two Georgia Senators might be seated as soon as Wednesday.

California’s new Senator to replace Kamala Harris, California Secretary of State Alex Padilla, is expected to be sworn in shortly after Kamala Harris takes the oath of office on Wednesday.

After the three new Democratic Senators take their seats, the Senate seats will be split 50-50, with VP-Elect Harris casting the tie vote in favor of Democrats.  However, there will likely be a power-sharing agreement regarding committee seats and some procedural matters, which will likely give Republicans more power than the minority usually has to affect the flow of legislation.

In addition, the filibuster will apparently remain in place because Democratic Senator Manchin and perhaps a few other Democratic Senators will not vote in favor of doing away with the filibuster.  That means that Democrats will only be able to pass budget-reconciliation bills with a majority and that all other legislation will need at least 10 Republicans to get a three-fifths cloture vote and get past a filibuster.

Senate Republicans will have a large say over Mr. Biden’s pandemic aid plan since at least some of the measures in the package, such as state and local aid, cannot be passed through the budget reconciliation process and are subject to a filibuster.

Leader McConnell fought Speaker Pelosi’s pandemic aid bill tooth and nail and finally relented and allowed the size of the bill to be raised to $900 billion from his previous limit of $500 billion.  Mr. McConnell is not likely to be happy about a new pandemic aid bill of any size, let alone $1.9 trillion.  Since Republicans are now in the minority, they can also be expected to rediscover their voice about the dangers of the soaring national debt.

If Mr. Biden faces implacable opposition from Republicans, then he may have to settle for a narrower pandemic aid bill containing only measures that can be passed through the budget reconciliation process.

Also, the new Biden pandemic aid bill may be delayed if the Senate is forced to spend the first weeks of its session on a trial of President Trump.  In theory, the Senate cannot consider other legislation during a Senate impeachment trial, although some accommodations could possibly be made if Republicans are amenable.  There is also the possibility that Speaker Pelosi might delay referring the impeachment to the Senate, thus giving Senate Democrats time to get Mr. Biden’s cabinet members confirmed and get a pandemic aid bill passed.

The markets will have to watch the Senate carefully over the next two years since Senate Republicans and their filibuster option will be the main obstacle for Mr. Biden’s agenda.

U.S. retail sales and consumer sentiment expected to remain weak — Today’s retail sales and consumer sentiment reports are expected to show continued weakness due to the pandemic surge.  The pandemic surge has caused renewed business restrictions and caused many people to stay home and wait for the pandemic to pass.  The pandemic has also caused a new hit to the U.S. labor market, which has increased fears among some consumers about their jobs and has forced more conservative spending patterns.  The recent $900 billion stimulus bill and the $600 stimulus checks are not expected to have any impact until January.

The consensus is for today’s Dec retail sales report to be unchanged m/m and -0.2% ex-autos, remaining weak after November’s declines of -1.1% and -0.9% ex-autos.

Meanwhile, today’s preliminary-Jan University of Michigan U.S. consumer sentiment index is expected to show a -1.0 point decline to 79.7, more than reversing December’s +0.8 point increase to 80.7.  U.S. consumer sentiment has so far recovered less than 1/3 of the spring-2020 plunge.

U.S. manufacturing production expected to show another increase in December — The U.S. manufacturing sector is expected to show another increase in December despite the pandemic surge.  The consensus is for today’s Dec manufacturing production report to show an increase of +0.5% m/m, adding to November’s report of +0.8% m/m.  Still, manufacturing production remains in dismal shape in general and was down -5.5% y/y in November.

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