Daily Market Color December 20, 2021Senator Scrouge? The 2nd to last trading week of the year kicked off with the news that Senator Joe Manchin (a key swing vote) would not support President Biden’s “Build Back Better” bill. Democrats need a unanimous vote to pass the $2T spending bill, which will need to be extended in term and reduced in size before the Senator will consider supporting it. The prospect of reduced government spending sent equities lower for a second straight session- the S&P 500 declining 1.14% on the day: Yield curve steepens as Omicron kicks off fresh wave of restrictions and cancellations. Short-term rates have been remarkably unaffected by the recent wave of Omicron infections. Fed funds futures still suggest the Fed will hike rates at least two times next year, though market-implied measures of future inflation (breakevens) have declined nearly 30 basis points over the past few weeks. Amid all those cross currents the 10-year Treasury yields managed to grind higher by 2bps on the day to close at 1.42%, though it still remains nearly 30 basis points below recent highs as well. What happens when you cut rates in the face of 21% inflation? Seemingly more inflation, at least it would appear to be the case in Turkey where President Recep Erdogan has flouted traditional economics by cutting rates. The Turkish Lira, which has weakened by nearly 40% this year against the dollar, took little solace in Erdogan’s comments today that there was “no going back” from recent interest rate cuts:
