Tuesday Morning Reads
- 2021 Central Bank Guide
- Hedge Funds Raise Mining Shorts
- In a Topsy-Turvy Pandemic World
- NYSE Scraps Plan to Delist China Telcos
- $900 Billion Won’t Carry Biden Very Far
- Drugmakers Price Hikes
- Bet on Refrigerated Rail
- A Simple Way to End Questionable Stock Trading
- Auto Sales in 2020 Expected to Hit Lowest Point
- Why I’ve Changed My Mind on Bitcoin
- Heading into 2021
Investors are eyeing today's Senate runoff election in Georgia, which will decide if Joe Biden has the ability to pursue his preferred economic policies at the onset of his administration.
Backdrop: Democrat Jon Ossoff, a documentary filmmaker, and Rev. Raphael Warnock, a senior pastor at the historic Black church Ebenezer Baptist Church in Atlanta, are taking on Republican incumbent senators David Perdue and Kelly Loeffler. As of now, the GOP holds a 50-48 majority in the Senate, but if Democrats win both of the runoff races, Vice President-elect Kamala Harris would be the tiebreaking vote, giving the party control of the White House and Congress.
Bigger picture: Both contests are tight and the results may not be immediately known, which could lead to a repeat of the chaotic vote re-counts following the U.S. presidential election in November. More drama will ensue on Wednesday as the House and the Senate formalize Biden's Electoral College win (a group of at least 12 Republican senators are objecting to the certification).
What it means for the market: Uncertainty about the Georgia runoffs already sent Wall Street sharply lower on Monday and volatility could return. Democrats taking the Senate would mean "an ever greater convergence of loose fiscal and monetary policy which would have negative implications for U.S. Treasuries and the dollar," according to Chris Woods at Jefferies. "Nonetheless, it could be the excuse for a near-term consolidation in risk markets after a strong post-election rally," added James Knightley, chief international economist at ING. Still, a blue wave would only give the party a slim Senate margin, meaning Democratic proposals - from rewriting the tax code to increased regulatory risks for Big Tech, banks and the energy sector - could be watered down. (10 comments)
President-elect Joe Biden has also referred to the latest coronavirus aid package as a "down payment" for dealing with the pandemic and today's runoff election in Georgia could make that a reality. Another stimulus bill providing cash for testing and vaccinations, aid to cities and states and a third round of direct payments could be valued in the trillions of dollars, and that is prompting worries about inflation and the massive federal deficit.
Backdrop: The U.S. hasn't seen significant inflation in almost 40 years, and since the 2008 financial crisis the economy has experienced very low inflation and even deflation. A moderate level of inflation occurs naturally in a growing economy, yielding higher prices that encourages businesses to invest, interest rates to go up and higher wages.
Bigger picture: Central bank officials have said they will tolerate inflation levels higher than 2% to juice the economy and get back to full employment, but if the number rises at a faster rate, it could be harmful for investors and force the Fed to tighten policy sooner than expected.
Outlook: "The bottom line is that it will take a long time for average inflation to reach 2%," Chicago Fed President Charles Evans said on Monday. "To meet our objectives and manage risks, the Fed's policy stance will have to be accommodative for quite a while." Others like Bill Dudley, the former president of the New York Fed, made waves last month by suggesting inflation might come back "much more quickly than the consensus suggests" due to pricing differentials and the lingering effects of the pandemic.
It's not easy disrupting the U.S. healthcare sector and JPMorgan (NYSE:JPM), Amazon (NASDAQ:AMZN), and Berkshire Hathaway (BRK.A, BRK.B) are learning that the hard way. Haven, the joint venture launched by the three companies back in 2018, will get disbanded at the end of January, with little to show for its three years of effort.
Mission: Haven aimed to combat the high and rising costs for employee healthcare by combining the might of leaders in technology and finance. It would radically improve the American healthcare system, which features a complicated configuration of doctors, insurers, drugmakers and middlemen that costs the country $3.5T each year.
What happened? Each of the three founding companies executed their own projects separately with their own employees, obviating the need for the joint venture to begin with, CNBC reports. Haven also faced several high profile departures, such as CEO Atul Gawande in May 2020.
Outlook: The three companies are still expected to collaborate informally on healthcare projects, while the venture has achieved no-deductible plans with wellness incentives for employees of Amazon, JPMorgan, and some Berkshire companies. (48 comments)
Backdrop: The Alphabet Workers Union formed mostly in secret over the past year, the NYT notes, and elected leadership last month. It's affiliated with the Communications Workers of America, a union that represents workers in telecommunications and media in the U.S. and Canada.
Bigger picture: As a minority union, it's not really in a position to negotiate over wages and work contracts, but it does add some staying power to what has been growing unrest among workers over issues tied to pay policies, harassment and company ethics.
Response from Google: "We've always worked hard to create a supportive and rewarding workplace for our work force. Of course, our employees have protected labor rights that we support. But as we've always done, we’ll continue engaging directly with all our employees." (35 comments)
Moscow and Riyadh are again at odds over how much extra oil the market can tolerate as the escalating COVID-19 pandemic threatens a wave of tighter lockdowns.
What happened? At a meeting on Monday, Saudi Energy Minister Prince Abdulaziz bin Salman proposed rolling back the 500K barrel-a-day production increase the group made this month, while his Russian counterpart, Deputy Prime Minister Alexander Novak, wanted to maintain that supply hike and add the same amount for February. OPEC+ talks were unexpectedly suspended as a result, but will resume today.
Note: While failure to reach a compromise is rare, it can have damaging consequences, like the month-long price war seen in 2020.
Outlook: The extension of talks also casts doubt on the production increase of 500K barrels a day traders had penciled in for March and April. OPEC+ producers are currently idling 7.2M barrels a day, or about 7% of world supplies, and had planned to return a further 1.5M barrels a day in installments over the coming months.
What else is happening...
Stock futures volatile after negative start to the year.
England enters its third national lockdown.
In Asia, Japan -0.4%. Hong Kong +0.6%. China +0.7%. India +0.5%.
In Europe, at midday, London +0.2%. Paris -0.2%. Frankfurt -0.2%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude +1.5% to $48.32. Gold +0.3% at $1952.59. Bitcoin +4.7% to $31483.
Ten-year Treasury Yield +1 bps to 0.93%
Today's Economic Calendar