“T” was for “turnaround” on Tuesday. And quite possibly for “temporary” considering how erratic markets have been over the past several weeks.
Risk sentiment recovered on the heels of a global selloff sparked by Omicron concerns and the apparent demise of Joe Biden’s fiscal package in the US.
As it turns out, some coal miners want Joe Manchin to reconsider Biden’s social spending plan. In a statement, United Mine Workers of America International President Cecil Roberts “urged” Manchin to “revisit” the legislation which, Roberts gently noted, “includes several items that we believe are important for our members and their communities.”
Specifically, the bill would extend payments to victims of Black Lung. Absent passage, those payments will be “cut in half,” Roberts said. Additionally, he reminded Manchin that Biden’s plan “includes language that will provide tax incentives to encourage manufacturers to build facilities in the coalfields that would employ thousands of coal miners who have lost their jobs [and] language that would, for the first time, financially penalize outlaw employers that deny workers their rights to form a union on the job.”
Roberts was careful to express gratitude to Manchin for his support, and noted that the union has “a long and friendly relationship” with the senator. Still, he said, the union is “disappointed that [Build Back Better] will not pass.” He also “strongly” encouraged Manchin to support Democrats’ voting rights legislation. He scolded “anti-democracy” lawmakers who are “working every day to roll back the right to vote in America.” If Manchin and the Senate fail to act in the face of that threat, they’d be “derelict of their duty to the Constitution,” the union said.
Meanwhile, Manchin and Biden reportedly spoke over the phone on Sunday night, hours after Manchin blindsided Democrats by announcing his opposition to the bill on Fox News. Apparently, Manchin wanted to write his own version of the legislation which didn’t include an extension of the expanded child tax credit. That’s a non-starter for many Democrats, including Biden. Manchin already succeeded in stripping the plan of key initiatives including ambitious climate proposals.
Hopes that Build Back Better can be resurrected probably helped revive risk appetite at the margins, but ascribing causality in post-OpEx, pre-Christmas trading is difficult. The oscillations which began following the Thanksgiving holiday in the US never really abated. One-month realized is in the 98th%ile on a one-year lookback (figure below).
On Nomura’s model, target vol de-allocated to the tune of some $91 billion in US equities on a one-month trailing window through last week.
“Our consolidated measure of equity positioning fell sharply in early December from near the top of its historical range to neutral, and has largely stayed there,” Deutsche Bank’s Parag Thatte wrote, in a recent update. The figure (below) illustrates the point.
Exposure has come off for both discretionary investors and systematic strats. Deutsche noted that discretionary investor positioning “is now well below levels implied by growth indicators which have remained quite robust.”
Other markets enjoyed a rebound from Monday’s losses. Japanese stocks surged, for example, and shares of Chinese property developers jumped the most in a month for no obvious reason after hitting a half-decade low on Monday. S&P downgraded Shimao Group, citing “heightened refinancing risks because of weakened capital market access and tight regulatory conditions.” “We assess the company’s liquidity to be less than adequate,” the accompanying color said. As a reminder, Shimao was thrust into the spotlight this month as China’s slow motion property meltdown continued.
Coming back to US equities, it’s worth reminding ourselves that recent turbulence hardly counts as a proper “selloff.” “Although the US equity market has experienced volatility over the past month, it has also been remarkably resilient,” JonesTrading’s Mike O’Rourke said.
“The S&P registered [an] all-time high on November 22 and pulled back 5.25% over the next couple of weeks, before recovering nearly all of the lost ground,” he added, noting that it was “just three trading days ago” when stocks were “within 25 basis points of that all-time high.”
I am sure the Manchin knew this provision about the coal miner funding was in the bill and the union lobbied for it. Who knows how this will end up, but acting like this is some revelation to manchin is disingenuous. Next report will be that manchin is shocked that parents who will no longer get the additional child tax credit are unhappy. The campaign of public pressure is about to intensify.
This bill was a disaster. The sunsetting of the programs was just a trick to hide the costs. Hopefully something can be worked out to revive some of them. But the dishonesty of how the bill was constructed has probably killed any chance of its revival.
I would urge restraint in assigning malice to how the bill was created. The budgeting gymnastics occurred because of the budgeting requests by the few Democratic holdouts. The intentions look genuine even if there is reasonable criticism to the bill.
One could attribute malice to the calculation by Republicans who are all blindly opposed to engaging in any kind of constructive negotiation in order to deny Democrats any kind of perceived success, even if this means that people suffer and inflation sources strengthen (lack of childcare, energy prices subject to highly volatile markets).