Daily Market Color December 1, 2020Rates Move Higher as Stimulus Talks Restart Rates and stocks climb higher as stimulus talks restart Market sentiment shifted today as House Speaker Nancy Pelosi and Senate Majority Leader both released revised stimulus plans, marking an end to what had been a stalemate in Congress. In his own hearing before Congress today, Fed Chair Jerome Powell warned the economic recovery would be stalled “until people are confident that it is safe to re-engage in a broad range of activities.” Despite his comments, all three major indices rose to intraday records – the S&P 500 and DJIA closed 1.1% and 0.6% higher, respectively. Treasury yields and swap rates rose dramatically across the curve – the 10-year UST yield closed 8 bps higher at 0.92%. Mnuchin and Powell still at odds over emergency lending programs During their hearing today, Treasury Secretary Steven Mnuchin’s decision to let the Fed’s emergency lending programs expire at the end of the year came under fire. Mnuchin defended his decision, commenting that his “motivation was not political. It was purely legal.” He also believes the programs are no longer necessary and that the $430 billion unused funds would be better used to fund Congress’ stimulus package, especially since domestic infection rates are rising. Fed Chair Powell publicly disagreed, commenting, “Any central banker would tell you it’s premature to be pulling back support for the economy.” While the two officials remain at odds, stalled stimulus negotiations restarted after Democrats, Republicans, and a bipartisan group revealed new aid proposals. Though Democrats and Republicans continue to disagree on the size and scope of the bill, a $908 billion bipartisan proposal backed by some officials from both the House and the Senate hints the two sides could compromise in the near future. November’s PMI manufacturing grew to 56.7 while the ISM manufacturing index fell to 57.6 Published earlier today, November’s PMI manufacturing index increased to 56.7 from last month’s 53.4, the steepest improvement in six years. According to the report, the growth was driven by the stronger domestic and international demand combined with faster upturns in product. Meanwhile, the ISM manufacturing index indicated that domestic activity slowed in November. Though the reading still indicates an expansion in manufacturing (above 50), it dropped from October’s level of 59.3, the highest level in over 15 years. Economists believe the decline was driven by the resurgence of virus cases.
