- McConnell says only small stimulus bill is needed after positive vaccine news
- Markets wait to see if President Trump will retaliate for EU tariffs for Airbus-Boeing dispute
- U.S. job openings expected to improve slightlyÂ
- 10-year T-note auction to yield near 0.92%Â
McConnell says only small stimulus bill is needed after positive vaccine news — The odds look dim for a stimulus bill during the lame-duck session after Senate Majority Leader McConnell and House Speaker Pelosi restated their highly divergent positions. Mr. McConnell said on Monday that Congress should pass a stimulus bill during the lame-duck session because “Too many Americans are still suffering economically.” However, he also said that yesterday’s positive vaccine news supports his view that only a limited-sized bill is needed. The Senate recently passed a $500 billion stimulus bill with PPP money and funding for schools and the pandemic, but no stimulus checks for Americans and no aid for states and cities.
Meanwhile, House Speaker Pelosi last Friday said that a smaller stimulus bill “doesn’t appeal to me at all.” She said, “That isn’t something we should be looking at.” Ms. Pelosi is so far sticking with her demand for a $2.4 trillion bill.
The odds for a stimulus bill during the lame-duck session look slim since Pelosi-McConnell are light years apart. Moreover, the White House has lost some of its capacity to pressure Senate Republicans into a deal against their will since President Trump lost the election. The power struggle over a stimulus bill has essentially shifted to Pelosi-McConnell from Pelosi-Mnuchin.
The odds are also lower for a stimulus deal during the lame-duck session because of the small chance that Democrats might win the two run-off elections for the Georgia Senate seats on January 5, thus giving Democrats control of the Senate. If that were to happen, then Ms. Pelosi would easily get her full-sized stimulus package and probably more. Ms. Pelosi may therefore bide her time to see if Democrats can win those Georgia seats. If not, then she will be forced to compromise with Mr. McConnell in January.
Markets wait to see if President Trump will retaliate for EU tariffs for Airbus-Boeing dispute — The EU on Monday announced tariffs on almost $4 billion of U.S. exports to Europe, taking effect today. The EU received authorization to impose those tariffs after the WTO ruled that the U.S. illegally subsidized Boeing. The Airbus-Boeing dispute has been going on for the last 16 years.
The EU on Monday said it went ahead with the tariffs because the U.S. has refused to negotiate an end to the Airbus-Boeing subsidy dispute and an end to tariffs on $7.5 billion of EU products that the U.S. implemented in October 2019 after the WTO ruled that Airbus received illegal government subsidies. EU trade commissioner Valdis Dombrovskis said yesterday, “We have made clear at every stage that we want to settle this long-running issue.” He added, “We are ready to remove our tariffs if the U.S. removes its tariffs.”
A settlement of the long-running Airbus-Boeing subsidy battle will presumably now fall to the Biden administration. In the meantime, President Trump might launch a new tariff assault on Europe in his remaining days in office as retaliation for today’s EU tariffs. Mr. Trump has long wanted to slap a 25% tariff on EU autos imported into the U.S. The global auto industry has pleaded with the Trump administration not to impose tariffs on EU autos since that would be highly disruptive to the global auto supply chain.
U.S. job openings expected to improve slightly — The consensus is for today’s Sep JOLTS job openings report to show an increase of +7,000 to 6.500 million, regaining a little ground after Aug’s -204,000 decline to 6.493 million. Job openings have risen sharply by a net 1.5 million in the past four months from April’s 5-year low of 4.996 million. However, job openings would still have to rise by another +519,000 to match January’s pre-pandemic level of 7.0 million.
The labor market has a long way to go before fully recovering to pre-pandemic levels. Payrolls have risen by 12.1 million from April’s low, but that is a recovery of only 54% of the 22.2 million jobs that were lost in March-April due to the pandemic shutdowns. Payroll jobs would have to rise by another 10.1 million jobs to match February’s pre-pandemic record high of 152.5 million jobs. That full recovery is not likely to happen for at least several years since it took more than six years for the U.S. to regain all the jobs lost during the Great Recession. The unemployment rate has fallen to 6.9% from April’s record high of 14.7%, but is still well above the pre-pandemic record low of 3.5%.
10-year T-note auction to yield near 0.92% — The Treasury today will sell $41 billion of new 10-year T-notes. After tomorrow’s Veterans Day holiday, the Treasury on Thursday will conclude this week’s record $122 billion refunding operation by selling $27 billion of 30-year bonds. The $41 billion size of today’s 10-year refunding T-note is up by $3 billion from August’s $38 billion auction and is up by a total of +$14 billion (+52%) from the $27 billion size that prevailed in 2019 and early 2020 before the U.S. budget deficit exploded due to the pandemic.
Today’s 10-year T-note issue was trading at 0.92% in when-issued trading late yesterday afternoon. The benchmark 10-year T-note yield yesterday rose to a 7-3/4 month high of 0.973% before falling back to close the day up +10.5 bp at 0.924%. The 10-year yield surged on the positive vaccine news, which suggested that the U.S. economy by later 2021 might be able to return to some semblance of normality.
The 12-auction averages for the 10-year are: 2.46 bid cover ratio, $9 million in non-competitive bids, 5.2 bp tail to the median yield, 46.5 bp tail to the low yield, 55% taken at the high yield, and 60.8% taken by indirect bidders (below the median of 63.8% for all recent Treasury coupon auctions).
