As we are nearing the 20th of January inauguration day in the U.S., the turmoil around U.S. Capitol building breach has not subsided. Around 20,000 National Guardsmen are expected to flood Washington D.C. next week, as per New York Times. Last week House Democrats sent a resolution to Vice President Mike Pence to invoke the 25th amendment of the Constitution which allows removing sitting President from the office. Pence rejected the resolution which resulted in House Democrats drafting impeachment articles that were approved by House with votes 232 to 197, with 10 Republicans voting in favour. Next step – Senate hearing.
While the Democrats prepare for the impeachment hearing, President-elect Joe Biden has put forward a COVID-19 relief package of US$ 1.9 trillion. Half of this package is aimed at individual, while the other half is going towards vaccine distribution, state and local government support. The package proposes US$ 1,400 dollar payments to individuals, and US$ 400 dollar unemployment benefits to be paid until September. Biden has also proposed increasing child tax credits, as well as extending student loan and mortgage forbearance. So the focus is on unemployed and those facing eviction and loan defaults. Around US$ 400 billion is intended towards vaccine distribution and administration to re-open the economy and schools. U.S. labor force has decreased by around 4 million people, compared to pre-pandemic levels, and a large chunk of it have been women who are forced to stay home as the schools have been closed. The remaining US$ 350 billion worth of stimulus is going to state and local governments that are struggling to make ends meet, even since tax revenues have plunged with less people and businesses generating tax revenue. This package will be deficit-funded with no spending cuts and tax hikes proposed, increasing U.S. budget deficit from 2020 levels of US$ 3.1 trillion to US$ 5 trillion. A whole 23% of 2020 GDP. President-elect Biden is expected to put forward another stimulus package in February that should focus on job creation, infrastructure spending with a focus on green energy – such as electric vehicle charging stations. But also, on health care and education spending. The assumption is that a tax hike would be proposed to fund this package.
U.S. jobs data is showing signs of rapid deterioration – initial jobless claims offered a nasty surprise last week when 965,000 new claims were submitted. New York Times reports that the actual number was 1.15 million initial claims, on top of 284,000 claims that were submitted under Pandemic Unemployment Assistance Program that focuses on freelancers, part-time workers, and others who are ineligible for jobless claims. After the seasonal adjustment the number reported was, however, 965,000. This trend is in line with ADP and non-farm payroll data from 2 weeks ago when around 140,000 jobs were cut in the U.S. during the month of December. The job losses came almost entirely from leisure and hospitality sector that cut 498,000 jobs, reports WSJ. Other sectors, such as retailers, factories and manufacturers added jobs. We would need to see initial claims dropping to historical levels of 200,000 to consider this recession ended. Rosenberg Research projects that estimated 7 million people will struggle with finding a new job in the near term, due to structural changes that have happened since COVID-19 crisis started. Automation and work-from-home themes mean that less people are required in the manufacturing, as well as servicing industry. Decreased need for commercial real estate and the related services also puts pressure on demand for people working in those sectors. Should be noted that 30% of work force was already underemployed before COVID-19 crisis took its toll.
The markets have taken a breather with S&P500 and Nasdaq100 respectively losing 1.48% and 2.30%. Russell200, however, posted strong gains of 1.51%. Gold was down 1.12%, while US dollar, measured as DXY, was up 70 bps.
Have a great trading week ahead!