Enjoy The Money

Another day of convoluted stimulus headlines stateside found lawmakers striking what one Senate aide described as a bipartisan agreement on a “needs-based” formula for the distribution of some $160 billion in funding for state and local governments.

The headlines suggested incremental progress towards overcoming one of two major hurdles to a deal, the other being liability protections for employers.

Earlier in the day, Mitch McConnell’s staff signaled an agreement on money for local governments wasn’t forthcoming, or at least not as it relates to the bipartisan deal championed by Democrats and moderate Republicans. McConnell, you’re reminded, prefers a competing proposal crafted by Steve Mnuchin.

For her part, Nancy Pelosi touted what she called “great progress” on a relief package. The House, she insisted, cannot leave town without a deal. McConnell made similar remarks about the Senate recently.

And yet, it remained unclear which proposal had the upper hand on the Hill. As of Thursday afternoon, a broad agreement that puts everyone on the same page was elusive with just a week to go before fresh COVID relief will need to be attached to a broader spending bill.

This, as jobless claims surged to the highest since mid-September, and COVID-19 cases approached new highs even in states that were able to crush the virus during the first wave. New York reported more than 10,500 cases for example. As Bloomberg notes, “New York is one of just three states that has not broken its single-day case record in recent weeks, along with Maine and Hawaii [but] that may be due to the sheer magnitude of the first spike there.”

It was a mixed session for US equities, which are still perched near records, as investors weigh D.C. gridlock, a decelerating labor market, and dour virus statistics against vaccine hopes and assumptions about a better macroeconomic outlook in 2021.

Of course, it’s never that simple. Flow dynamics are keeping equities pinned, and on Nomura’s estimates, vol-control funds have re-leveraged to the tune of some $30 billion over the past two weeks as trailing realized moved lower. The S&P is more than 16% above its 200-day moving average.

Treasurys bull flattened during a session that featured a strong 30-year sale. Yields were lower by as much as 5bps at the long-end.

“[Thursday’s] long bond takedown demonstrated solid sponsorship for the comparatively high yield offering for 30-year Treasury paper,” BMO’s Ian Lyngen and Ben Jeffery remarked.

“Assuming the flattening sentiment is a function of pricing into the FOMC WAM risk, it’s a difficult trend to fade, especially as it has the backing of the ‘buy the auctions’ momentum,” they added, noting that “at a minimum, to price in such a shift in Fed purchases the December steepening needs to be unwound [leaving] plenty of flattening to be accomplished in preparation for such a curve specific round of monetary policy accommodation.” As ever, BMO’s rates team offers some of the most incisive daily commentary around, and that’s no exception.

I’d be remiss not to mention Airbnb, which more than doubled in its debut, valuing the company in excess of $100 billion — because nothing makes you want to travel and pay to stay in someone else’s condo like a global outbreak of deadly viral pneumonia.

I don’t have much to add on that story. First it was pandemic plays like Zoom and Peloton surging into the stratosphere, then it was Snowflake mania, which culminated this week in the cloud-computing company surpassing IBM in market cap, and now we’ve got Airbnb up 112% on the first day.

CEO Brian Chesky summed it up pretty well in comments to Bloomberg TV: “I don’t know what else to say.”

I don’t either, Brian. I really don’t. Other than: “Enjoy the money.”