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On early Tuesday Dow Future was almost flat amid stimulus (CARES Act 3.0) skepticism and IMF optimism over economic recovery in 2021. The risk-trade was also under stress on COVID uncertainty in U.S. as-well-as Europe. But Dow was also boosted by an upbeat report card by GE, J&J and 3M and hopes of blockbuster earnings from Microsoft and Starbucks.
Wall Street was also buoyed by early signs of corona curve flattening as COVID hospitalizations in the U.S. fell below 110K on Monday, the lowest level since 13th December and the number of critical/ICU patients also decreased slightly. Also, new COVID infections were under 200K for the ninth day in a row but more contagious coronavirus variants continue to worry while fatalities surpassed 421K. So far 23.5M doses of the Covid vaccines have been administered with 3.44M people receiving the second dose.
Biden prefers bipartisan agreement rather than budget reconciliation for passage of CARES Act 3.0 by the U.S. Congress:
Biden, being an experienced politician as-well-as administrator, knows very well how Capitol Hill/U.S. politics & policies work. Thus Biden is emphasizing consensus/bipartisan agreement rather than using the once-in-a-year nuclear option of budget reconciliation path to approve his bills/CARES Act. And Biden also knows very well he has to compromise on his CARES Act 3.0 proposals for $1.9T by as much 50% for such bipartisan agreement/deal-making process.
For example, the group of 16-bipartisan centrist/moderate Senators may agree for additional stimulus checks for $1400 only for vulnerable Americans having a comparatively lower family income below $300K annually, not $400K and things like that (more targeted). Biden has indicated he is open for such compromises to give space for Senate Republican leaders.
As a pointer, the relation between Biden and Senate Republican Leader McConnell is very good for over a decade. And Biden, unlike Trump, never goes for any personal attack on any opposition politicians or leaders. Biden believes in political courtesy, discussions, and consensus- as at the end of the day, he also needs Republican supports for the formation of his new cabinet. Biden said in July that he’d ‘take a look’ at eliminating the filibuster if Republicans became overly ‘obstreperous’ but has otherwise been respectful of the traditions of the Senate, where he spent six terms before becoming VP in 2009.
Talking about bipartisan consensus, Senate Minority Leader McConnell ends a five-day logjam, will now pursue a Senate power-sharing deal (as a part of organizing resolution). This follows after two centrist Democrats led by Manchin and Sinema vow to preserve filibuster rule. As a pointer, McConnell had said Republicans would not agree to a power-sharing arrangement in the 50-50 Senate unless Democrats agreed to preserve the filibuster rule, the Senate’s 60-vote supermajority requirement for legislation including CARES Act 3.0.
On Monday Manchin (DNC) said that killing the filibuster would run against Biden’s goal of uniting the country: “We’ve got to come together, so I do not support doing away with the filibuster under any condition. It’s not who I am.”
A spokeswoman for Sinema (DNC) said that she was ‘against eliminating the filibuster and she is not open to changing her mind about eliminating the filibuster’.
The House Majority Leader Schumer said about McConnell: “He is not the majority leader. He is the minority leader, and he is not going to get his way. We are not going to do what he wants---We hope in the next day or two he will come to his senses and take our offer (CARES Act 3.0) ---- We will move on President’s relief package by mid-March, with a follow-on package later in the year”.
Although, both McConnell and Schumer are claiming political victory over the Senate filibuster rule, the solution is the bipartisan way. The reality is if there is no bipartisan agreement for even a smaller CARES Act 3.0 ($750B-1.10T) by mid-February/March, the same may be further delayed to H2-2021 amid Trump’s impeachment and subsequent Capitol Hill chaos. Trump is also pressuring Senate Republicans to reject outrightly his 2nd impeachment trial; otherwise, he may form his ‘Patriot’ political party, which may eventually break the Republic party itself. And in that scenario, it may be tough for McConnell to guarantee at least 10-Democrat support for any filibuster resistant legislation.
Despite true trifecta (till 2018 mid-term election) and Senate simple majority, Trump failed to pass his tax cut (TCJA) fiscal stimulus in early 2017 because of the Senate filibuster rule and eventually, he took the nuclear option of budget reconciliation route to pass the same in Q4-2017 (after the start of new financial year/Oct-Sep). This time, we may see smaller CARES Act 3.0 by Mar’21 or by June’21 and the bigger infra stimulus (Build Back Better/recovery phase) by H2-2022 after the completion of COVID mass-vaccinations and signs of herd immunity.
Biden may also take the route of bipartisan consensus before any real move to eliminate or partially roll back Trump’s Chinese tariffs as eventually, at the end of the day Biden also needs revenue to balance the surging U.S. fiscal deficit (debt). Thus he may not be in a hurry to reverse Trump’s bellicose tariff policies at least till 2022 mid-term election (expected full recovery of the U.S. economy). At the end of the day, Trump’s Chinese tariffs; i.e. import duties are being paid by U.S. importers, not Chinese exporters and it’s an indirect tax on Americans. So, before going for any revenue cut, Biden may prefer for a higher tax on riches (above $400K annual income) and then cut Trump tariffs as a part of ‘tax relief’ for ordinary Americans.
Technical view: SPX-500, DJ-30, and NQ-100 Futures:
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