The climate has darkened since investors realized that vaccine announcements will not prevent the second wave of coronavirus from hitting the country. New York has closed its schools, California has declared a curfew and Texas yesterday topped its contamination peaks dating back to last July. The U.S. health agency even recommended that people avoid traveling for Thanksgiving next Thursday. At the same time, employment figures worsened, a first in several weeks.
Democrats and Republicans have confirmed the resumption of their discussions on a recovery plan. The two camps started with apparently irreconcilable amounts to finally bring their positions closer together in the $2000 billion zone. But the imminence of the presidential election had put an end to the debates. Since Republicans could retain control of the Senate even if they lose the White House and the House of Representatives is Democratic, a bipartisan agreement is still needed to seal a stimulus package. Meanwhile, Treasury boss Steven Mnuchin has refused to extend the emergency credit line program co-constructed with the Fed beyond 2020, even though the central bank would have preferred it to continue. Mnuchin estimates that the return of unused funds will allow Congress to reallocate $455 billion from the federal budget. And to finally find a compromise?
As the pandemic recovers, the driving force behind the rise in U.S. equities is once again public aid: the prospect of a government boost and the benevolence of the Fed.
In Europe, Brexit talks continue. Initially scheduled for mid-November, the deadline for post-Brexit negotiations has (again) passed. Both sides still claim to want to reach an agreement before December 31, but at the same time, some states are keeping in mind the possibility of a no-deal Brexit. Indeed, the Netherlands, France, Belgium and Spain have asked the Commission to work on updating the emergency measures in case of exit without agreement.
It will be necessary to hurry, however, because the United Kingdom has officially left the EU and if an agreement is not reached before December 31, the lack of common standards in trade relations between Brussels and London could add to the already difficult economic situation. Three stumbling block remain, namely the EU's demand for a level playing field with the U.K., access to British waters and the dispute resolution procedure in their future agreement.
Earlier today, the Japanese manufacturing flash PMI index disappointed, at 48.3 points, still in a contraction zone. The consensus was 49.4 points. As for Japanese inflation, it stood at -0.7% on an annualized basis in October, a nine-year high.