Stimulus package negotiations remain stalled

Prior week summary

The major U.S. equity indices moved higher for a second consecutive week as hopes for a breakthrough in stimulus package negotiations, positive COVID-19 treatment developments, and better-than-expected economic data improved investor sentiment despite rising COVID-19 cases in the U.S. and Europe. After the House of Representatives passed a $2.2T stimulus bill the week prior, stimulus package negotiations between the Trump administration and senior Democrats continued last week as the two sides work to bridge the gap amid disagreements over the size of the relief package. President Trump abruptly called off negotiations on Tuesday, opting to wait until after the election for further negotiations and to focus on the confirmation of Supreme Court nominee Amy Coney Barrett. President Trump quickly changed course that evening, expressing support for targeted assistance to small businesses and the airline industry and reopening the door for negotiations. On Friday, the White House tabled a $1.8T relief proposal, revising the $1.6T offer the White House proposed a week earlier, in an attempt to further narrow the gap between the White House proposal and the $2.2T proposal passed by the House of Representatives. While Republicans have been hesitant to support a bill with the price tag of either proposal, President Trump suggested that he would accept a bill that costs more than either proposal on Friday saying, “I’d like to see it happen. A lot of people are hurting because of China. It wasn’t these people’s faults. I would like to see a bigger stimulus package frankly than either the Democrats or Republicans are offering.” While negotiations are set to continue, a timeline for a package both sides can agree on remains unclear. House Speaker Nancy Pelosi expressed resistance to the revised White House proposal on Sunday saying, “This past week, the president demonstrated very clearly that he has not taken the war against the virus seriously, personally or nationally. This attitude is reflected in the grossly inadequate response we finally received from the administration on Saturday. Until these serious issues are resolved, we remain at an impasse.”

As of Monday evening, the global tally for COVID-19 cases sits just under 37.5 million, with nearly 1.1 million individuals succumbing to the virus. COVID-19 cases have been rapidly rising across Europe and steadily rising in the U.S. as the World Health Organization reported the single greatest daily increase of COVID-19 cases since the pandemic began on Saturday. The U.K. and France have seen significant increases in confirmed cases and hospitalizations with France reporting over 26,000 new cases on Sunday, by far the country’s highest daily total. After Paris shuttered bars earlier in the week, French Minister for Solidarity and Health, Olivier Véran, announced that Lyon, Lille, Grenoble, and Saint-Etienne would enter the maximum “coronavirus alert level” and close their bars for at least two weeks. The move comes approximately two weeks after U.K. Prime Minister Boris Johnson announced similar restrictions in response to the increased spread of COVID-19 in the last several weeks. In the U.S., case counts have steadily trended higher over the week with the U.S. reporting over 62,000 new infections on Friday, a level not seen since mid-August. Many market participants appeared hopeful that Regeneron’s antibody treatment, REGN-COV2, and Gilead Science’s antiviral drug, Remdesivir, two drugs that President Trump deemed instrumental in his own recovery from COVID-19, would prove effective in treating individuals with the virus. Investor sentiment improved further on Wednesday when drug maker Eli Lilly announced that it is seeking an Emergency Use Authorization from the Food and Drug Administration.

Wednesday brought the release of the minutes from the FOMC’s latest policy meeting. The minutes added context to the discussions surrounding the FOMC’s adoption of average inflation targeting. While there were two dissenters at the conclusion of the latest policy meeting, the minutes indicated that “several” members argued that “there did not appear to be a need for enhanced forward guidance at this juncture,” and that, “such guidance could contribute to a buildup of financial imbalances that would make it more difficult for the Committee to achieve its objectives in the future.” On Tuesday, Federal Reserve Chairman Jerome Powell spoke about the economic outlook in a speech to the National Association for Business Economics. As has become increasingly common for the Federal Reserve Chairman, Powell reiterated calls for fiscal stimulus saying, “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” and noting, “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses.”

The look forward

Market participants are gearing up for a busy week of economic data releases with updated figures on the Empire State Manufacturing Index, Philadelphia Fed Business Outlook Survey, Consumer Price Index, Producer Price Index, retail sales, and jobless claims, among others, dotting the economic calendar.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)