Still no path on Biden agenda

From: POLITICO's Morning Money - Monday Oct 04,2021 12:03 pm

Oct 04, 2021

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Quick Fix

Welcome back! Still no idea on Biden agenda — Well, we avoided a shutdown. And we’ll probably avoid a debt limit crisis. But it’s still not at all clear when Congress will pass the bipartisan infrastructure bill or the vastly larger Build Back Better budget reconciliation bill. Both will likely get done in some form and will boost markets and the economy heading into the midterms. But the path remains clear as mud.

Via our Quint Forgey: “White House senior adviser Cedric Richmond said Sunday that White House officials do not have a set timeline for passage of President Joe Biden’s legislative agenda after a House vote on a bipartisan infrastructure bill was delayed last week. …

“Richmond’s remarks come after House Speaker Nancy Pelosi postponed a planned vote last Thursday on the infrastructure bill amid infighting between Democratic progressives and moderates over the president’s massive climate and social spending proposal. …

“House moderates — buoyed by new reluctance from Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) about Biden’s spending plan — are pushing for an immediate vote in their chamber on the infrastructure bill that cleared the Senate in August. Meanwhile, House progressives are refusing to back the infrastructure bill until they secure further assurances from their moderate colleagues on Biden’s spending plan”

Wall Street party in jeopardy — Via Victoria Guida and me over the weekend: “Massive support from the Federal Reserve has sent U.S. stocks and bonds soaring and enriched investors ever since markets almost collapsed at the onset of the pandemic.

“Now, the party may be ending. The central bank plans to begin yanking back its extraordinary assistance to the economy as early as next month, and many Fed officials are open to increasing interest rates next year — far earlier than expected — driven by fears that production and shipping delays will continue to stoke inflation. …

“The Fed’s withdrawal comes at a particularly precarious moment for the economy. The trillions of dollars in relief passed by Congress over the past 18 months is rapidly wearing off.”

GOOD MONDAY MORNING — Hope everyone is as stoked as MM for Yanks-Red Sox Tuesday night at Fenway. The game America deserves. Email me on bwhite@politico.com and follow me on Twitter @ morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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DRIVING THE WEEK

Democratic battles over the two big spending bills will once again dominate the week … President Biden plans to deliver remarks on the debt limit on Monday and will travel to Michigan on Tuesday. He will offer remarks on the September jobs report on Friday. Expectations are for a gain of 470K and the unemployment rate dipping to 5.1 percent from 5.2 percent with wages up 0.4 percent.

U.S. TO HOLD NEW TALKS WITH CHINA ON TRADE PROBLEMS — Via our Gavin Bade: “The United States will reopen talks with China about its failure to comply with the so-called Phase One trade deal and restart a process for U.S. companies to win exemptions from tariffs on Chinese products, U.S. Trade Representative Katherine Tai will announce Monday morning.

“Tai’s speech in Washington will outline the Biden administration’s broad approach to the trade relationship with China after office completing an eight-month review of former President Donald Trump’s economic policies toward Beijing. American lawmakers and corporations have pressed the White House for months to lay out its strategy and provide some relief from Trump’s tariffs on Chinese products.”

CLARIDA TRADES REVEALED — Bloomberg’s Craig Torres: “Federal Reserve Vice Chair Richard Clarida traded between $1 million and $5 million out of a bond fund into stock funds one day before Chair Jerome Powell issued a statement flagging possible policy action as the pandemic worsened, his 2020 financial disclosures show.

“Clarida’s trades, described in forms filed with the government ethics office, show the shifting of the funds out of a Pimco bond fund on Feb. 27, 2020, and on the same day buying the Pimco StocksPlus Fund and the iShares MSCI USA Min Vol Factor exchange-traded fund in similar dollar ranges. For the year, he listed five transactions. The following day on Feb. 28, a Friday, at 2:30 p.m., Powell took the unusual step of releasing a statement saying the virus poses
‘evolving risks to economic activity.’”

Better Markets’ Dennis Kelleher emails: “All this trading by Fed leaders clearly violated explicit, applicable Fed policies as I quoted in my letter to Powell late last week. It is telling that Powell etc. never mention or refer to the actual Fed policies when saying that the trading ‘complied or appears to have complied’ with the policy.”

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Markets

BRUISED MARKET EYES TREASURY YIELDS TO GAUGE STOCKS' PATH — Reuters' Lewis Krauskopf: "Among the indicators investors are using to gauge stocks' future trajectory is the spread between the yields on two-year and 10-year Treasuries. Some view this as a barometer of whether the economy is slowing or overheating.

“A spread of between zero and 150 basis points is a 'sweet spot' for stocks, which has been consistent with an 11 percent annual return for the S&P 500, based on historical data, according to Ed Clissold, chief U.S. strategist at Ned Davis Research. The S&P 500 has averaged a 9.1 percent gain annually since 1945, according to CFRA's Stovall."

HEADWINDS MOUNTING FOR WORLD ECONOMY INTO FINAL STRETCH OF 2021 — Bloomberg's Enda Curran: "The global economy is entering the final quarter of 2021 with a mounting number of headwinds threatening to slow the recovery from the pandemic recession and prove policy makers’ benign views on inflation wrong.

"The spreading delta variant continues to disrupt schools and workplaces. U.S. lawmakers are wrangling over the debt ceiling and spending plans. China is suffering an energy crunch and pursuing a regulatory crackdown, while markets remain on edge as China Evergrande Group struggles to survive."

SPECTER OF TREASURY ROUT COMES AT A GRIM TIME FOR EMERGING MARKETS — Bloomberg's Netty Idayu Ismail and Sydney Maki: "Emerging markets haven’t looked so exposed to climbing U.S. yields for almost half a decade. The correlation between currencies in the developing world and short-term Treasuries increased to around strongest level since 2017 last week. It underscores the potential fallout for the asset class if traders continue to price in a faster-than-expected tightening drive by the Federal Reserve.

"Sings of stress are already showing. Emerging-market stocks just capped their longest string of weekly declines in more than two years, while bond funds in the space registered $2.8 billion of outflows in the week through Sept. 29, the biggest exodus since March, according to data from Bank of America."

RECORD JUNK-LOAN SALES FUEL DIVIDEND PAYOUTS — WSJ's Sebastian Pellejero: "U.S. companies have sold a record amount of junk-rated loans to raise money for dividends this year, powered by a recovering economy and investors’ demand for higher-yielding assets.

“Nonfinancial companies including insurance provider Asurion LLC and fast-food chain Whataburger Inc. have issued more than $72 billion worth of speculative-grade loans to pay dividends in 2021, according to S&P Global Market Intelligence’s LCD. That is already a full-year record in data going back to 2000, topping 2013’s previous high of $54.4 billion."

ICYMI: STOCKS REBOUNDED, BUT STILL CLOSED OUT WORST WEEK SINCE WINTER — AP's Stan Choe: "Wall Street rebounded on Friday, led by companies that would benefit most from a healthier economy, but not by enough to keep the stock market from its worst week since the winter. The S&P 500 rose 49.50, or 1.1 percent, to 4,357.04 following another choppy day of trading. It swung between a loss of 0.4 percent and a gain of 1.6 percent through the day."

Fly Around

LEAKED RECORDS OPEN 'PANDORA'S BOX' OF FINANCIAL SECRETS – AP's Michael Liedtke and Jonathan Mattise: "Hundreds of world leaders, powerful politicians, billionaires, celebrities, religious leaders and drug dealers have been hiding their investments in mansions, exclusive beachfront property, yachts and other assets for the past quarter-century, according to a review of nearly 12 million files obtained from 14 different firms located around the world.

"The report released Sunday by the International Consortium of Investigative Journalists involved 600 journalists from 150 media outlets in117 countries. It’s being dubbed the 'Pandora Papers' because the findings shed light on the previously hidden dealings of the elite and the corrupt, and how they have used offshore accounts to shield assets collectively worth trillions of dollars."

DURBIN SAYS GOP PLAYING WITH 'LOADED WEAPON' ON DEBT LIMIT — Bloomberg's Tony Czuczka: "Senate Majority Whip Dick Durbin accused Republican leader Mitch McConnell of 'playing games with a loaded weapon' by threatening to filibuster a suspension of the U.S. debt ceiling, saying Democrats are ready to pass the measure on their own. 'We’re going to get this done,' Durbin, an Illinois Democrat, said on CNN’s 'State of the Union' on Sunday. 'And we’re going to do it in a responsible way and face this as soon as we return next week.'"

MORTGAGE PAYMENTS HAVEN'T BEEN THIS UNAFFORDABLE SINCE 2008 — WSJ's Orla McCaffrey: "Record growth in home prices has made owning a home less affordable than at any point since the financial crisis. The median American household would need 32.1 percent of its income to cover mortgage payments on a median-priced home, according to the Federal Reserve Bank of Atlanta. That is the most since November 2008, when the same outlays would eat up 34.2 percent of income."

FALLING UNEMPLOYMENT COULD ADD TO WORRIES ABOUT THE LABOR MARKET — WSJ's Eric Morath: "Many economists would welcome a small rise in the unemployment rate. They are troubled by the rate’s swift decline from its pandemic peak because it partly reflects a lack of job seekers — effectively limiting the amount of fuel in the economy’s engine.

"The Labor Department’s official unemployment rate — the most well-known gauge of the labor market’s health — counts as unemployed only those who aren’t working but are actively seeking a job. That leaves out millions who stopped working and looking for work since the coronavirus hit the economy in early 2020, leaving many businesses struggling to hire."

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