The first week of the new year promises no shortage of melodrama in the US, where the Georgia runoffs will determine control of the Senate and dozens of congressional Republicans plan to stage what amounts to a symbolic protest against the certification of Joe Biden’s win. News that Donald Trump attempted to convince Georgia officials to “find” enough votes to flip the state in his favor and thereby influence the Senate races added an extra wrinkle.
The narrative around the runoffs hasn’t changed from a market perspective. If Jon Ossoff and Raphael Warnock somehow managed to best David Perdue and Kelly Loeffler, the market would be forced to rethink gridlock assumptions in D.C. literally overnight. Gridlock is, of course, a fixture of Beltway wrangling, but a Democratic Senate would go quite a long way towards clearing a path for the Biden administration to pursue a reflationary policy agenda with Janet Yellen running point.
The races have “heavy implications for reflation and duration, all as it relates to Democrat policies on fiscal spending, infrastructure, taxation and regulation,” Nomura’s Charlie McElligott emphasized, in one of his final notes of 2020.
Read a full preview of the Georgia runoffs: Georgia (Still) On My Mind
By Saturday, more than 3 million people had already voted in the runoffs. “A strong early-voting turnout in heavily Democratic areas and among African-American voters suggests that Republicans will need a strong election-day performance to retain their Senate seats,” The New York Times wrote.
Trump preemptively called the runoffs “invalid and illegal,” which certainly seems to suggest that the results could be disputed were Democrats to prevail. Georgia was, of course, the target of attorney Sidney Powell’s infamous “kraken” lawsuit, which alleged a vast, international conspiracy. Trump recently called for Republican Governor Brian Kemp to resign.
For markets, a Democratic victory would presumably add fuel to the reflation trade, while a GOP hold would cement expectations for gridlock and a Senate firewall against bigger spending and “expensive” social initiatives. It’s worth noting that for all the press the pro-cyclical rotation received, growth stocks outperformed in December, and long-end yields are still struggling to break out to the upside.
As far as the early voting goes, Michael McDonald, a University of Florida political science professor who tracked the Georgia vote, told Reuters that “these are crazy numbers.” He meant that the scope was vast, not that any conspiracies were afoot.
The same Reuters piece cited Bobby Jenkins, Democratic chair in rural Randolph County, who said “It’s going to hinge on how many Republicans turn out on Election Day.”
It still isn’t clear whether claims of fraud emanating from Trump will boost Election Day turnout from GOP voters or suppress it. As of the latest polling, which may or may not be any semblance of reliable, Ossoff and Warnock commanded among their largest leads of the race. The market still expects Perdue and Loeffler to prevail.
As for certification of Biden’s Electoral College win, what’s typically a formality will instead be transformed into a circus. A dozen GOP senators and dozens (plural) of Republicans in the House will object, leading to a two-hour (and possibly longer) debate.
There’s still no chance that the outcome of the election will change, but many worry that the decision by Ted Cruz to lead a coalition of current and incoming senators in protest without presenting any evidence of election fraud sets a wholly dangerous precedent. Mike Pence endorsed the futile gambit.
Read the full story on the certification drama: Fire Jugglers
On the data front, markets will digest the usual slate of top-tier figures released during the first week of the month.
ISM manufacturing is on deck Tuesday, with services following on Thursday. Services sector activity decelerated in November, while price pressures grew. Manufacturing has generally held up.
Obviously, the concern is that December’s data stateside will reflect the surge in virus caseloads, hospitalizations, and deaths. The US passed 20 million cases and 350,000 fatalities over the holidays. Hospitalizations continue to rise.
Vaccine rollout has been slow, coming nowhere near the mark set by the administration. “President Trump had initially pledged 300 million doses by January 2021 when announcing Operation Warp Speed, then later this fall dropped the estimate to 100 million,” ABC wrote, in a simple, informational piece documenting the figures. “After Pfizer adjusted its production estimates, Health Secretary Alex Azar promised 40 million doses on hand and 20 million vaccinations by the end of the year,” the article added, noting that “instead, the administration was on track to ship those 20 million doses by the first week of January, with only 2.6 million vaccinations recorded by the federal government.”
The figure (below) is an updated snapshot of the situation for hospitalizations and mortality in the US. There are, of course, concerns that the data doesn’t yet reflect any surge attributable to Christmas and New Year’s gatherings. Daily cases hit almost 300,000 on Saturday according to Johns Hopkins.
Whether lockdowns and containment protocols associated with the worsening epidemic will affect the labor market is one of the key questions for market participants.
November’s jobs report was a disappointment, and jobless claims hit the highest since September last month, before coming down in the final weeks of 2020. The figure (below) is perhaps the simplest way to visualize where we are relative to where we’ve been.
The entirety of the jobs created during the longest expansion in US history were erased in just two months. Since then, the US economy has clawed back 12.3 million of those jobs, leaving the labor market nearly 10 million short of pre-pandemic levels.
This “V-shaped” recovery is not complete, and isn’t likely to be complete anytime soon.
Also on the docket in the new week are the December Fed minutes, which, if they’re anything like the statement and post-FOMC press conference, will be conducive to napping.