Faux Deadlines

The stimulus “deadline” in the US on Tuesday turned out not to be a “deadline,” but it did seemingly succeed in prodding Steve Mnuchin further towards the Democratic position at the margins.

Talks continued on Wednesday and they’ll likely drag on through Thursday too. A deal between The White House and Nancy Pelosi now appears as the most likely outcome, to the extent it makes sense to speak in probabilities anymore. Do the terms “likely” and “unlikely” have any meaning in an upside-down world where grass doesn’t seem to be green on some days?

I don’t have any good answers there, but I do know that most market participants (and certainly the media) now fully understand that without Senate buy-in, all of this wrangling is for naught. 10-year yields in the US are now near their 200-day moving average as incremental progress on a deal at least nods to the notion that one way or another, more spending is coming, whether pre-election, in the lame duck session, or early in 2021.

Never mind how many people will experience food scarcity or go totally bust financially between now and some indeterminate future relief date. “We are now under two weeks to Election Day. At this stage, is there any electoral benefit for either side in passing a stimulus bill that won’t actually stimulate anyone to vote one way or the other, or is there more benefit in the blame game?,” Rabobank’s Michael Every wondered.

Some suggested that perhaps both sides are keen to simply show voters that legislation is being drafted, even if there’s no actual chance of it being passed prior to the election. (Something like: “See? We’re doing our jobs!”)

There were still no concrete indications on Wednesday that the GOP-controlled (for now) Senate is prepared to seriously consider a deal worth nearly $2 trillion. I put emphasis on “seriously” — Mitch McConnell has said his members will take a look, and there were other allusions to that, but it all seems like perfunctory lip service to decorum. The Senate’s attempt to move forward on a $500 billion targeted bill failed, as expected.

Meanwhile, across the pond, those “other” intractable negotiations (Brexit) made some measure of progress, suggesting yet again that brinksmanship was just that: Artificial “deadlines” for the sake of making deadlines. A deal on the latest sticking points (conjured a few months back by Boris Johnson, who inexplicably decided to put a no-deal Brexit back on the table as though the UK’s list of problems wasn’t long enough already) is within reach, EU negotiator Michel Barnier remarked.

The yuan continues to be a compelling story. The currency surged again Wednesday and now sits at the strongest against the dollar since July of 2018, when the trade war heated up in earnest.

The PBoC may not want USDCNH to be a one-way trade (lower), but that’s what it’s turned into. Efforts earlier this month to arrest appreciation by removing reserve requirements on forwards are now a distant memory.

The fix was weaker than expected Wednesday, but it didn’t matter. For six straight days, traders have pushed the currency stronger than the fix. The yuan is seen benefitting both from economic outperformance (as China’s recovery continues) and monetary policy divergence (as the PBoC essentially sticks with a neutral stance versus global peers in full-on easing mode).

Speaking at a forum on Wednesday, PBoC governor Yi Gang said the world’s second largest economy has recovered to “normal” levels. Monetary policy, he said, will be “prudent, flexible, appropriate, and targeted.” (That sounds like something Senate Republicans might say when cynically describing their approach to stimulus for the US economy.)

Of course, the yuan’s strength is aided and abetted by dollar weakness, which in turn is responding to stimulus speculation. The greenback was on track for a fourth day of losses Wednesday.

“Long-end bond yields [are] catching up to the stimulus-led growth narrative, and broad dollar declines show FX markets are following suit,” Bloomberg’s Laura Cooper wrote. “Yet slipping US stock futures and European equities [raise] the question: will rising yields catch up to stocks?”

That’s a question we may need to ask eventually, but likely not right now.


Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

6 thoughts on “Faux Deadlines

  1. People aren’t sitting around their kitchen tables talking about stocks. They aren’t sitting around talking about stimulus packages, either.

    They are sitting around their kitchen tables right now taking about character.

    Americans are looking at Donald Trump, and they are saying this man represents ME. They are saying Donald Trump represents ME as an individual, and that this man represents US as Americans, who we are — when others look at US.

    And you know what? Americans don’t like the idea that Donald Trump represents who they are.

    They hate it. They hate the lying. They hate the bigotry. They hate the racism. They hate the cruelty. They hate it when they hear his voice speaking out through his followers. They hate it when they hear a name called, a minority attacked, and any blind, unreasoning assault on people, or any human being.

    They hate Donald Trump because they hate his hatred. That’s what they are talking about.

  2. I agree.
    There are a few more politicians (on both sides of the aisle), who I won’t name (I have learned) that I would categorize as “I am embarrassed that they are in an elected position, representing the United States”.
    Term limits, please.
    I also think that the Federal government has gotten “way too big”. One size fits all does not work- many of the things the Federal government is meddling in should be moved to the states.
    Oh well, probably not going to happen anytime soon. Meanwhile, I am learning to separate the political portion of my investment analysis from my libertarian dreams.

    1. Just to complete my thought process, as long as the printing presses remain in operation ( Republicans and Democrats like to spend more than they collect in taxes) and interest rates stay low (therefore-TINA), probability of a liquidity crisis creating an equity sell off seem low (IMHO).
      I am somewhat worried about a solvency crisis (commercial real estate?), but I have seen that the Federal Reserve will not let US banks fail. Fed could buy the loans from banks and make them whole ( just more money printing required).

  3. Trump supporters are convinced the polls are wrong, deja vu 2016, despite pollsters saying methodology is fixed. Biden supporters are afraid they may be right, which out to motivate them to show up at the polls, but then again the youth always tends to stay away. What seems disconcerting for DEM is the 41% support by Hispanics for Trump as shown in a recent poll and the possibility that black men are breaking for Trump in larger numbers. Nothing is for certain. As for the stimulus bill, it is challenging by prior that no deal before the election is the most likely outcome so will be watching the goodjudgment site for any sign that sentiment is changing. A big beautiful deal would not seem to be priced.

NEWSROOM crewneck & prints