Monday Musings: December 7, 2020

Dec 07, 2020


Public Trust Credit Team
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Negotiators inch toward a stimulus deal but remain divided on two key areas

Congressional leaders continue to meet and hash out a $908 billion stimulus amidst the backdrop of a larger 2021 spending negotiation. Congress has stated the stimulus bill would be a part of a 2021 appropriations omnibus bill that Congress has until December 18 to pass before their holiday recess to avoid a government shutdown. The bill is larger than the initial GOP bill of $500 billion and much smaller than Pelosi’s bill of $2.4 trillion, but there are still two difficult impasses to navigate. Democrats are stuck on COVID-19 liability protections for businesses that the GOP has been pushing, and the GOP does not want to pass legislation that includes roughly $160 billion in aid to states. Several Democrats have also expressed displeasure that the bill does not include another round of $1,200 direct payments to Americans that were supported by both President Trump and President-elect Biden. Another issue looming for the stimulus bill is the appropriations bill to which it is attached; the two sides of the aisle need to negotiate and pass a fiscal 2021 spending bill that features challenging issues such as border wall funding, emergency over-cap funding for the VA, and over 300 minor edits on topics ranging from climate change funding to anti-racism police training. The disappointing jobs report of last week led to a rally in the markets on the hope of stimulus, but the negotiating table still appears fairly far apart and the final iteration of stimulus is still up in the air.

Increasing fears of a no-deal Brexit

Britain officially exited the E.U. earlier this year on January 31, but finalizing new trade agreements has turned out to be a major headache with negotiations dragging on for months. The U.K. is still part of the E.U.’s tariff-free single market but that will change at the end of the year regardless if a Brexit agreement is reached or not. Michel Barnier, the E.U.’s main Brexit negotiator, said that the talks with his U.K. counterpart had failed to reach a compromise on a potential Brexit deal this Sunday. The outstanding issues remain fishing rights in British waters and state aid (known as level playing field). Earlier today, the U.K. government did indicate that it may drop contentious internal market bill clauses around export declaration and state aid if the E.U. trade deal passes, which is somewhat encouraging. If no deal can be reached, trade between the U.K. and the E.U. will revert the World Trade Organization term, implying a return of tariffs on both sides.

EU budget stalled as Hungary and Poland pledge to veto the bloc’s spending plan

In July, members of the EU unanimously voted in favor of a new COVID-19 stimulus package as well as the bloc’s proposed budget for the 2021-2027 period. Having been criticized for funding member states that undermine the EU’s political values, the bloc has made a new proposal that would allow for funding cuts with the approval of a qualified majority of EU governments instead of unanimous consent. Now, Hungary and Poland are vowing to veto the entire EU spending plan as the two nations argue that the proposal for a majority vote is a violation of their national sovereignty. Both countries are at odds with certain political initiatives within the EU agenda including freedom of press, judiciary independence, immigration, and non-discrimination based on sexual orientation. With no approval from Hungary and Poland, the EU would be forced to operate on emergency monthly budgets starting in January. Unless a compromise can be made, the EU may face increasing pressure to leave Hungary and Poland out of the virus stimulus fund, effectively stripping the countries of their current veto which would certainly have longer-term implications regarding the two countries’ interest in staying in the bloc.
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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