President Trump signs COVID-19 relief bill

Prior week summary

The major U.S. equity indices ended the final week of the year on a high note, setting new all-time highs, as the passage of a federal stimulus bill and continued distribution of two COVID-19 vaccines in the U.S. dominated headlines and improved investor sentiment. After waiting nearly a week to sign the latest COVID-19 relief bill into law, President Trump tabled his last-minute efforts to increase the $600 direct payment to $2,000 per qualifying adult and signed the bill into law on Sunday evening. The passage of the $900 billion bill marks the end of months of political wrangling in Washington and allows for $600 direct payments to qualifying adults, a continuation of the $300 enhanced weekly unemployment benefits, a $284 billion replenishment of the Paycheck Protection Program, and a month-long extension of a federal eviction ban. Speaking after President Trump signed the relief bill, House Speaker Nancy Pelosi praised the new legislation saying, “This relief legislation is a down payment on what is needed to crush the virus, put money in the pockets of the American people and honor our heroes — our healthcare workers, first responders, transit and sanitation workers and teachers.” On Monday, the House of Representatives passed the CASH Act, a proposal that would raise the $600 maximum threshold for the direct payments to $2,000. On Tuesday, Senate Majority Leader Mitch McConnell blocked an attempt to unanimously approve the House-approved bill in the Senate and instead introduced a bill that included an increase in the payment threshold to $2,000 but also included items that Democrats are unlikely to accept. The bill failed to make it to a vote last week on the Senate floor, but negotiations and discussions are expected to continue in the coming weeks.

COVID-19 cases continued to mount over the holiday season with the global tally sitting just above 85 million cases. The situation in the U.S. continues to worsen with a pandemic record 277,900 cases reported on Saturday alone. Many state and local governments have opted to continue the restrictions put in place in December as the country now has over 125,500 hospitalized with COVID-19. Market participants received a jolt of optimism on Wednesday after U.K. regulators announced that they authorized the AstraZeneca-Oxford University vaccine for emergency use. The approval of the AstraZeneca-Oxford University drug marks the second vaccine approved in the U.K., along with the Pfizer-BioNTech vaccine. The U.K.’s authorization of the AstraZeneca-Oxford University vaccine raised speculation and hope that the new drug will receive an Emergency Use Authorization from the U.S.’s Food and Drug Administration shortly. In the U.S., vaccine distribution has surpassed 13 million doses delivered with over 4.2 million individuals receiving their first dose, approximately 1.3% of the U.S. population. Director of the National Institute of Allergy and Infectious Diseases Anthony Fauci expressed optimism about the two vaccines currently being distributed saying, “I believe that if we do the kind of vaccines through April, May, June, July, that by the time we get to the early fall, we will have enough good herd immunity to be able to really get back to some strong semblance of normality.”

In a holiday-shortened week, market participants received updates on the Chicago Purchasing Manager’s Index, the Pending Home Sales Index, and jobless claims. Unlike its New York and Philadelphia counterparts, the Chicago Purchase Manager’s Index moved higher in December, increasing to 59.5, above the 58.2 level seen in November. Improvement in the measures of employment and production led the index higher despite a decline in the new orders measure. The Pending Home Sales Index declined 2.6% in November, marking the third consecutive month the index has seen a decline. While the index has seen declines in recent months, pending home sales are up over 16% from levels seen a year ago. 787,000 individuals filed for unemployment in the last week, down from the 803,000 claims seen the week prior and below the consensus estimate calling for 835,000 claims. While a decline in the number of claims seen week over week is encouraging, analysts warn that the absolute level of claims is extraordinarily high when looking at pre-pandemic data.

The look forward

Market participants are in for a busy week of economic data releases as updated figures on construction spending, the ISM Manufacturing Index, the ISM Non-Manufacturing Index, factory orders, jobless claims, and the December non-farm payroll report, among others, are scheduled for release. All eyes will turn to Georgia on Tuesday as the results of two Senate runoff elections will determine the balance of power in the Senate.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)