Is Christmas Canceled?
By Stefan Koopman, Senior Market Economist at Rabobank
For months’ on end, lawmakers in the US have been struggling to find common ground and reach a compromise on a new Covid-19 relief package. Eventually they found each other at an estimated USD 900bn, which is closer to what the Senate Republicans preferred. See also this piece from Philip Marey for his insights into this deal.
The deal had been reached minutes before midnight and is attached to the regular spending bill that should fund government operations through next September. Even though it all seemed to be going fine and yet another partial shutdown was averted, President Trump decided in one of his ‘signature moves’ to upset the applecart at the very last moment and, among other things, to suddenly call for higher stimulus payments (USD 2,000 rather than the agreed USD 600) for individuals. Whilst he did not outright say that he would veto the current stimulus bill, which the House and the Senate could in turn override with supermajority votes, there is a risk of a so-called pocket veto. If this bill isn’t on the President’s desk by the end of the day, he could effectively veto it by keeping it in his ‘pocket’ for the next ten days. The President is given this exact ten day window, Sundays excluded, to either sign or veto a bill, but the current Congressional session will end on January 3. After that date, the President simply cannot return the bill to Congress. The upshot is that a decision not to sign the bill would then be a pocket veto and Congress does not have the opportunity to override. This would mean that the much-needed stimulus checks won’t go out in the days after Christmas. Sorry not sorry?
Since the UK-France border closure began on Sunday, nearly 3,000 lorries have been stuck in southern England and it is likely to take days for this situation to be resolved. However, yesterday afternoon the European Commission recommended that critical trade and passenger transport links between the UK and continental Europe should be reopened as soon as possible. Only a few hours later, France followed these recommendations and agreed to end the suspension, yet allowing passage only if the EU citizens stuck in the UK are able to show a negative Covid-19 test. (Note here that Britons could be barred from EU entry on January 1 2021, when the UK becomes a “third country” to the EU, unless their travel is deemed essential).
It is indeed tempting to make the connection with Brexit. Could we regard the Commission’s intervention as an olive branch towards the United Kingdom, which is legally still being treated as an EU member state, or is it a jab towards France, which continues to push for tougher EU negotiating positions on all things Brexit (and may found this situation a little too convenient… sorry not sorry?). The dynamics are the same: France and the UK are at loggerheads over Covid and Brexit, and the European Commission mediates. It once again shows that ‘sovereignty’ is more than the capacity to write your own laws. It is also about being able to manage interdependencies in ways that work out well. From a geographical point of view, the UK will always remain highly dependent on European coastal states in terms of its transport links and its access to international markets. This week’s events have reminded us how delicate this balance is.
So, is there going to be Brexit deal? We still think there is one to be done here, as it is in the best interests of both parties in these negotiations. In fact, if you forget about all the self-assigned deadlines, you would even be inclined to think that the entire process went according to script. Already in February this year, just weeks after ‘Brexit day’, the two negotiating mandates showed that there were some pretty big gaps on level playing field, deal governance, and fisheries. It was expected that one or more political interventions would be needed to bridge these gaps. It was also clear that, at least in relative terms, fisheries would be the strongest card in the UK’s deck. So, here we are, in the final stage of the negotiations, and Prime Minister Johnson is directly calling on President Von der Leyen to mediate between the UK and the EU’s coastal states and to talk fish.-
The hope is that this drawn-out process comes to an end sooner than later and that there’ll be a deal before Christmas eve. In that case there should be just enough time left to get the legal and procedural work in order to allow for provisional application of the new treaty from January 1 onwards. Otherwise the EU and the UK would be really getting in uncharted territories. But if no-deal is the end result, it won’t be because of the process. It will be because of fishy politics.
Back to the US, where the estimate of third quarter GDP was revised up a little bit to 33.4% from 33.1% annualized, which is a relatively minor revision at these growth rates. There were no significant changes ‘under the hood’ either. The consumer confidence numbers were more interesting. The widely held axiom is that there can be no robust economic recovery unless the pandemic is brought under control; and yesterday’s confidence figures were fully in line with this thesis. The Conference Board’s measure declined sharply to 88.6 in December from a downwardly revised 92.9 in November. This was far below the consensus expectation and provided a sombre preview of the Christmas shopping season. It is also another clear signal that rising virus cases, hospitalizations and deaths across the Northern Hemisphere, which aren’t likely to abate anytime soon, will weigh on consumer sentiment until a widespread rollout of the vaccines allows governments to set the reopening of the economy in motion.
Wed, 12/23/2020 – 09:35