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The House passage of a stimulus bill last Friday, seeking to ameliorate some of the damage done by the coronavirus outbreak, will not be nearly enough.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
The establishment of the Fed's commercial paper funding facility, announced yesterday, replicates the first wave of asset purchases undertaken after the crash of 2008.
The NY Fed's announcement yesterday restarts QE. The $60B of bill purchases previously planned for the period from March 13 through April 13 will now consist of $60B purchases "across a range of maturities to roughly match the maturity composition of Treasury securities outstanding".
Our working assumption now is that Congress will not pass a substantial Covid relief bill until next year, probably in February.
The PM now is at a fork in the road and will have to decide in the coming days whether to risk all and seek a general election, or restart the process of trying to get the Withdrawal Agreement Bill--WAB--through parliament.
The impending appointment of ex-Fed Chair Yellen as Treasury Secretary is to be welcomed--a safer pair of hands is hard to imagine--but it does not change our view that the next Covid relief bill will be modest if Republicans still control the Senate after the January 5 runoffs in Georgia. As Treasury Secretary, Dr. Yellen will have a powerful bully pulpit, alongside Fed Chair Powell to make the case for more fiscal action.
After many years in which the phrase "twin deficits" was never mentioned, suddenly it is the explanation of choice for the weakening of the dollar and the sudden increase in real Treasury yields since the turn of the year, shortly after the tax cut bill passed Congress.
It's not our job to pontificate on the merits, or otherwise, of the tax cut bill from a political perspective.
The failure of House Republicans to support Speaker Ryan's healthcare bill has laid bare the splits within the Republican party. The fissures weren't hard to see even before last week's debacle but the equity market has appeared determined since November to believe that all the earnings-friendly elements of Mr. Trump's and Mr. Ryan's agendas would be implemented with the minimum of fuss.
If Congress passes another Covid relief bill early next month, as we fully expect, it will have to be financed quickly via increased debt issuance.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
The passage of the House tax cut bill does not guarantee that the Senate will follow suit with its own bill, still less that both chambers will then be able to agree on a single bill which can then b e signed into law. As
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
As we reach our deadline on Tuesday afternoon, Eastern time, no agreement has been reached between Treasury Secretary Mnuchin and House Speaker Pelosi on the next Covid relief bill.
Sterling briefly touched $1.30 yesterday, in response to signs that a very small majority in the Commons stands ready to vote for an unamended version of the Withdrawal Agreement Bill--WAB-- on Tuesday.
Fed Chair Powell did not specify how many bills the Fed will buy in order boost bank reserves sufficiently to remove the strain in funding markets, but we'd expect to see something of the order of $500B.
Has the Internal Market Bill killed off the chances of a trade deal with the E.U.?
Last week the Chinese authorities issued a series of new measures to help with bank recapitalisation, and, we think, to supplement interbank liquidity.
Political uncertainty is starting to dampen housing market activity again.
After the disruption in repo markets last week, theories are flying as to what's going on.
The consensus for today's first post-apocalypse jobless claims number, 1,500K, looks much too low.
Data released yesterday in Mexico highlighted the volatility in international trade resulting from the pandemic.
Sharp falls in energy prices have been a boon for consumers, freeing up considerable funds for discretionary purchases. Domestic energy and motor fuel absorbed just 4.7% of consumers' spending in Q2, the lowest proportion for 12 years and well below the 6.7% recorded three years ago.
First, apologies for a much more dense report than usual; there's a lot of ground to cover here. The most likely outcome of the November 3 election right now is a Democrat sweep.
The emergence last month of a new E.U. Withdrawal Agreement that has a strong chance of being ratified by MPs appears to have given a small boost to business confidence.
Today's payroll number is completely irrelevant, because 97% of the 10.2M increase--so far--in initial jobless claims from their pre-coronavirus level came after the employment survey was conducted, between Sunday March 8 and Saturday March 14.
The Fed will do nothing to the funds rate or its balance sheet expansion program today.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
The best way to answer the perennially vexed question of what's happening to home prices is to take a deep breath and cite a range, given that the four main measures of prices don't measure the same thing in the same way, never agree with each other, and often contradict themselves from month-to-month.
Inflation pressures in Brazil are well under control, with the August mid-month reading falling more than expected, allowing the BCB to cut interest rates in the near term if needed.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
October's surprise jump in public borrowing is not a material setback for the Chancellor, who will stick to his new Budget plans for modest fiscal stimulus next year.
We need to start today with a word of warning about today's initial jobless claims, where the risk to the consensus seems mostly to be to the upside.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
The coronavirus ordeal continues in LatAm as a whole.
We have been puzzled in recent weeks to see clear indications of softening economic activity--falling restaurant diner numbers, fewer small firms open for business and falling employment, and reduced footfall at businesses--while data from the travel business continued to improve.
Last week's enormous €1.3T take-up in the ECB's first post-virus TLTRO auction was hardly a blip for financial markets, consistent with the reactions to previous auctions.
The political momentum in the run-up to the election now lies with Labour.
The rate of growth of new coronavirus infections across Europe slowed yesterday, in some cases quite markedly. We can quibble about the reliability of the data in individual countries, given variations in testing regimes, but the picture is strikingly uniform.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
January's public finance data, released today, take on particular importance because they are the last to be published before the Chancellor delivers his first Budget on March 8. The public finances nearly always swing into surplus in January, primarily because the deadline for individuals to submit self-assessment--SA--tax returns for the previous fiscal year is at the end of the month. Firms also pay their third of four payments of corporation tax for their profits in the current fiscal year.
We triggered a bit of pushback on social media yesterday when we suggested that Larry Kudlow's familiarity with the alphabet is questionable.
The recent deceleration in households' real spending means that either business investment or net exports will have to pickup if the economy is to avoid a severe slowdown this year.
The gap between U.K. and U.S. government bond yields has continued to grow this year and is approaching a record.
We doubt that the new Job Support Scheme, announced by the Chancellor yesterday, will hold back the tide of redundancies over the coming months.
As we showed in yesterday's Monitor--see here--EZ governments and the ECB have thrown caution to the wind in their efforts to limit the pain from the Covid-19 crisis.
China's unadjusted current account surplus widened to $16.0B in the preliminary report for Q3, from $5.3B in Q2.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
The steep rise in the number of people unemployed for more than six months attracted a good deal of media attention after the release of Friday's August jobs report, as well it might.
The Fed's inaction yesterday was no surprise, but it doesn't necessarily tell us anything about what will happen over the next few months.
The slump in the Markit/CIPS services PMI in November to its lowest level since July 2016 provides the clearest indication yet that uncertainty about Brexit has driven the economy virtually to a stand-still.
Many analysts were alarmed earlier this week by news from across the pond that the U.S. treasury is planning to break the bank in the fight against Covid-19.
Data released last week confirmed that Mexico's economy stumbled in the first half of the year, hurt by a temporary shocks in both the industrial and services sectors, and heightened political uncertainty, due to policy mistakes at the outset of AMLO's presidency.
The single most surprising U.S. economic report ever published likely is explained very simply: We know a great deal about the numbers of people losing jobs, but not much about people finding jobs.
Our comments on the inflation outlook over the last few months have focused mostly on the risk of continued mean-reversion in some of the components crushed by Covid, and the surge in used car prices, both of which remain real threats.
The consequences of sterling's sharp depreciation for inflation were brought home yesterday by the news that the iPhone 7 will cost more than its predecessor. The entry-level version is priced at £60 more than its iPhone 6S equivalent. Of course, the new version is more advanced, but the fact that the dollar price held steady, at $649, demonstrates the U.K. price hike entirely is due to the adverse impact of the weaker pound.
October payrolls surprised us to the upside, prompting a wave of chatter from the commentariat to the effect that the labor market is healing. Well, it was healing, in the week ended October 17, when the survey was conducted.
The Chancellor's Summer Statement contained a targeted package of measures aiming to sustain employment and support the ailing hospitality sector. In total, these measures could inject up to £30B into the economy, depending on take-up by households and firms.
The jobless claims numbers today are a bit of a wild card.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
When the BoJ tweaked policy back in July, we think the increase in flexibility in part was to lay groundwork for the BoJ to respond to the Fed's ongoing hiking cycle.
The initial stock market reaction to news of President Trump's Covid test never made much sense. Sure, markets do not like uncertainty, but in a country where the election is only four weeks away, and very few voters remain undecided, it's hard to see how Mr. Trump's diagnosis materially changes the race.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
Britain looks set for a general election during the week commencing December 9, now that all main parties are pushing for a pre-Christmas poll.
The Fed made no changes to policy yesterday, as was almost universally expected.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
French finance minister Bruno Le Maire had bad news for his compatriots yesterday.
It's entirely possible that Donald Trump will be re-elected today, but it is not very likely. The FiveThirtyEight model--the only one to give Mr. Trump much chance in 2016--puts his odds at only 10%.
We have revised up our third quarter GDP forecast to 25% from 15%, in the wake of last week's data. Consumers' spending is on course to rise by 36.6% if July's level of spending is maintained, though we're assuming a smaller 33% increase, on the grounds that the expiration of the enhanced unemployment benefits on July 31 will trigger a dip in spending for a time.
If you were to return home to find your home ablaze, heaven forbid, and the fire department hard at work to douse the flames, would you be more concerned about your impending homelessness or the risk of water damage to your soft furnishings?
Support in opinion polls for both the Conservatives and Labour has been increasing steadily.
As we reach our deadline at 4pm Eastern, definitive results are not yet available for Nevada, Georgia or Pennsylvania, any one of which would push Joe Biden over the 270 Electoral Vote threshold, given that Michigan and Wisconsin have been called for him.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
Sterling strengthened last week to its highest tradeweighted level since mid-May, amid hopes that the U.K. government will concede more ground to ensure that the European Council deems, at its December 14 meeting, that "sufficient progress" has been made in Brexit talks for trade discussions to begin
April's money and credit figures show that relatively few firms suffered from a lack of liquidity at the beginning of the Covid-19 crisis.
Perhaps the single strongest U.S. economic data series in recent months has been construction spending, which has risen by more than 1%, month-to-month, in four of the past five months.
Analysts have fiercely debated the consequences of the U.S. Treasury's plan to break the bank in Q2 with a whopping €3T issuance of new debt to cover the initial costs of Covid-19.
The French manufacturing data delivered another upside surprise last week, following the solid numbers in Germany; see here. French industrial production rose slightly in November, by 0.3% month-to-month, extending the gains from an upwardly-revised 0.5% rise in October.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
Mexican industrial activity started the fourth quarter badly. Industrial production fell 0.1% month- to-month in October, pushing the year-over-year rate slightly up to -1.1% from -1.2% in September and -0.7% in Q3.
As we reach our deadline Monday afternoon, the Columbus Day long weekend has brought no progress on the fiscal front.
Brazil's outlook is still improving at the margin, as positive economic signals mix with relatively encouraging political news.
January's consumer price data, released tomorrow, look set to reveal a third consecutive rise in CPI inflation, dampening speculation that the U.K. is stuck in a deflationary funk. Indeed, we think CPI inflation picked up to 0.4%, from 0.2% in December, above the consensus, 0.3%.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
The Johns Hopkins database shows a mixed coronavirus picture in the Andes, with the trend in new cases still rising in Argentina and Colombia, but relatively flat for about the past two weeks in Peru.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
May's consumer price figures, released on Wednesday, likely will show that CPI inflation held steady at 2.4%--matching the consensus and the MPC's forecast--though the risks lie to the upside.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
A quick rebound in growth, after the slowdown to a reported 2.6% in the fourth quarter, is unlikely.
The entire 10.5% increase in personal income in April, reported on Friday, was due to the direct stimulus payments made to households under the CARES Act.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
The pick-up in GDP in July is a re assuring sign that the economy is on course to grow at a solid rate in Q3, thereby substantially weakening the case for the MPC to cut Bank Rate before Britain's Brexit path is known.
Mexico's inflation nudged up to a fresh 16-year high in August, but the details of the report confirmed that underlying pressures are easing, in line with our core view.
Peru has been one of the most badly-hit LatAm countries, with Covid crushing economic activity.
On December 17, voters will go to the polls for the second time in less than a month to choose Chile's next president.
The surge in Covid-19 case and hospitalizations-- and, in due course, deaths--in some southern states since they began to reopen probably is not a sign of what is likely to happen as the populous states in the Northeast and Midwest reopen too.
The undershoot in the September core CPI does not change our view that the trend in core inflation is rising, and is likely to surprise substantially to the upside over the next six-to-12 months.
Japan's exports showed no signs of jitters in October, when countries in Europe started reimposing nationwide lockdowns in response to the rapid escalation of Covid-19 cases.
Investors have welcomed the flurry of encouraging opinion polls for the Conservatives that were published over the weekend, with cable rising nearly to $1.30 on Monday, a level last seen on a sustained basis six months ago.
Japan's adjusted trade balance flipped back to a modest surplus of ¥116B in February, after seven straight months of deficit.
Judging by conversations we have had with investors since October, the idea that the Fed will be willing to let inflation overshoot the 2% target for a time has become received wisdom in the markets.
Brazil's central bank kept the Selic policy rate at 6.50% this week, as markets broadly expected.
We still think it is a question of when--not if-- MPs will be successful in taking a no -deal Brexit off the table.
The New York Times called the China trade agreement reached Friday "half a deal", but that's absurdly generous.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
Politics will be the key factor in LatAm over the coming quarters, as presidential and legislative elections take place throughout the region.
In recent client "meetings" we have been emphasizing the idea that a sustained recovery in the economy over the summer depends on the solidity of a three-legged stool.
A no-deal Brexit is a remote possibility. The U.K. government and EU are closing in on a deal and Brexiteers within the Conservative party have failed, so far, to trigger a confidence vote on Mrs. May's leadership.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
The weekly jobless claims numbers tend to be choppy around the turn of the year, and our take on the seasonal adjustments points to a clear increase in today's report, for the week ended January 11, even without the impact of the government shutdown.
The story of the next few weeks will be a gradual and uneven--but unambiguous--tightening of anti-Covid restrictions across the country.
We were not hugely surprised to see stocks tank again yesterday.
A 45bp rise in long-term interest rates--the increase between mid-August and last week's peak--ought to depress stock prices, other things equal.
December's consumer prices figures, released tomorrow, look set to show CPI inflation ticked up to 0.2% from 0.1% in November, despite the renewed collapse in oil prices. The further fall in energy prices this year means that the inflation print won't reach 1% until May's figures are published in June. But Governor Carney has emphasised that core price pressures will motivate the first rate hike--a focus he likely will reiterate in a speech on Tuesday-- meaning that a May lift-off is still on the table.
Japan's exporters have largely shrugged off the country's second wave of Covid-19.
The spectacular 1.3% rebound in manufacturing output last month -- the biggest jump in seven years, apart from an Easter-distorted April gain -- does not change our core view that activity in the sector is no longer accelerating.
Japan's trade deficit has bottomed out. The unadjusted shortfall narrowed to -¥833B in May,
Governor Kuroda dropped further hints in speeches earlier this week that interest rates will be going up. He discussed methods of exit, in loose terms.
The vote in the House of Commons today on whether MPs should effectively take control of Brexit negotiations, if Theresa May can't strike a deal by mid-January, looks finely balanced.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
Fed Chair Yellen speaks at Jackson Hole today, at 10:00 Eastern. Her topic is billed as "financial stability", but that does not necessarily preclude remarks on the outlook for the economy and policy.
The commentariat was very excited Friday by the inversion of the curve, with three-year yields dipping to 2.24% while three-month bills yield 2.45%.
A rate hike from the Fed this week would be a gigantic surprise, and Yellen Fed has not, so far, been in the surprise business. It would be more accurate to describe the Fed's modus operandi as one of extreme caution, and raising rates when the fed funds future puts the odds of action at close to zero just does not fit the bill.
Financial markets in Brazil and Argentina have been under pressure this week, following negative news, both domestic and external. In Brazil, the Ibovespa index tumbled nearly 1.8% on Tuesday after a Senate Committee rejected the Government's labour reform bill.
The chance of a zero GDP print for the first quarter diminished--but did not die--last week when the president signed a bill granting full back pay to about 300K government workers currently furloughed.
The second presidency of Chile's conservative Sebastián Piñera, a billionaire turned politician, began on Sunday, March 11, in favourable economic circumstances.
The Prime Minister's resignation and the stillborn launch of the Withdrawal Agreement Bill last week has forced us to revise our Brexit base case, from a soft E.U. departure on October 31 to continued paralysis.
The US trade deficit unexpectedly widened by 17% to $46.6 billion in December from $39.8 billion in November.
Stories of Chinese ghost cities are plentiful and alarming. The aggregate data present a startling picture. Between 2012 and 2015, China started around six billion square meters of residential floorspace but sold only around five billion.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
We're guessing Fed Chair Yellen would have preferred to have another acceleration in hourly earnings and a dip in the unemployment rate along side the hefty 211K leap in November payrolls, but no matter. At its October meeting, the Fed wanted to see "some further improvement in the labor market", and by any reasonable standard a 509K total increase in payrolls in two months fits the bill.
• U.S. - Congressional face-off could delay the next relief bill until September • EUROZONE - The Eurozone economics team is on vacation • U.K. - Surging retail sales are a poor guide to overall consumption • ASIA - Korea's grim Q2 likely was the low, but the recovery is fragile • LATAM - The deep recession will suppress inflation in Mexico
Delayed oil effects wreak havoc on Japan's import bill
Fed Chair Yellen yesterday reinforced the impression that the bar to Fed action in December, in terms of the next couple of employment reports, is now quite low: "If we were to move, say in December, it would be based on an expectation, which I believe is justified, [our italics] that with an improving labor market and transitory factors fading, that inflation will move up to 2%." The economy is now "performing well... Domestic spending has been growing at a solid pace" making a December hike a "live possibility." New York Fed president Bill Dudley, speaking later, said he "fully" agrees with Dr. Yellen's position, but "let's see what the data show."
At a stroke, the October payroll report returned the short-term trend in payroll growth to the range in place since 2011, pushed the unemployment rate into the lower part of the Fed's Nairu range, and lifted the year-over-year rate of growth of hourly earnings to a six-year high. The FOMC has never quantitatively defined what it means by "some further improvement in the labor market", its condition for increasing rates, but if the October report does not qualify, it's hard to know what might fit the bill. We expect a 25bp increase in December.
The Prime Minister will invoke Article 50 today, marking the end of the beginning of the U.K.'s departure from the EU. The move likely will not move markets, as it has been all but certain since MPs backed the Government's European Union Bill on February 1.
Sterling yesterday clawed back some of the ground it lost earlier this month, when the government put forward the controversial Internal Markets Bill.
Was this an isolated occurrence, connected to the graft investigation into Chinese billionaire Xiao Jianhua, and his financial conglomerate?
The EU's negotiations with the U.K. over Brexit are off to a bad start. The position in Brussels is that negotiations on a new relationship can't begin before the bill on the U.K.'s existing membership is settled. But this has been met with resistance by Westminster; the U.K. does not recognise the condition of an upfront payment to leave.
Banca Monte dei Paschi di Siena SpA will step up efforts to win investors for an expanded debt-to-equity swap over the coming days, pressing ahead with a 5 billion-euro ($5.3- billion) capital increase as its options to avoid a state rescue dwindle. Pantheon Macroeconomics Chief Euro Zone Economist Claus Vistesen weighs in on "Bloomberg Daybreak: Americas."
Chief U.S. Economist Ian Shepherdson on the effect of Covid19 on the U.S. Economy
Do India's recent reform efforts hit the spot?
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