December 9, 2022

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Business is my step

The Finance 202: Momentum builds for economic relief package as leaders report progress

14 min read

“I’m optimistic we’re going to be able to complete an understanding sometime soon,” Senate Majority Leader Mitch McConnell (R-Ky.) said after a late-night Tuesday meeting, per Mike DeBonis, Seung Min Kim and Jeff Stein. “Everybody wants to get a final agreement as soon as possible. We all believe the country needs it.”

Added House Minority Leader Kevin McCarthy (R-Calif.): “I think we’ve built a lot of trust. I think we’re moving in the right direction; I think there’s a possibility of getting it done.”

Details remain sparse. But take that as a bullish sign for progress. 

When negotiators are declining to spell out their positions publicly, it usually means meaningful work is happening behind closed doors.

With the asterisk that the situation remains fluid, the leaders appear to be working off a $748 billion relief framework forged by a bipartisan group of lawmakers. The package would renew aid for struggling small businesses, provide money to schools, extend unemployment benefits and help fund the distribution of vaccines, among other priorities that draw broad support.

A second measure the group developed faces much longer odds. It would isolate the items triggering the strongest partisan objections: a liability shield for businesses opposed by most Democrats and $160 billion of aid to state and local governments that most Republicans view as a nonstarter.

Democrats for months have been standing firm on their demand to send more help to state and local governments facing deep budget cuts that will force interruptions of critical services, layoffs or both. But that insistence appears to be softening: The No. 2 Democrats in both chambers — House Majority Whip Steny Hoyer (Md.) and Senate Minority Whip Dick Durbin (Ill.) — have indicated this week they are willing to move forward without the aid. They reason it will be back on the table for another round of relief next year.

For his part, McConnell said he will drop what had been his red-line demand for a liability shield in the interests of passing the relief both parties agree to now. “We can live to fight another day on what we disagree on,” the Republican leader said earlier Tuesday.

He said lawmakers won’t leave Washington for the year without a deal:

There is more evidence the legislative gears are grinding to life. 

The House is set to meet today, “with votes expected at 3 p.m., in one potential sign that lawmakers are preparing to act if necessary on an agreement,” my colleagues report. “And committee staff had been told to be prepared to review legislative text on Tuesday night, according to aides familiar with the conversations.”

But key groups of lawmakers continue to disagree on some fundamentals. The Congressional Progressive Caucus is testing support for opposing a measure that doesn’t include both direct checks and enhanced unemployment benefits. Rep. Alexandria Ocasio-Cortez (D-N.Y.) called the demand a red line: 

Across the Capitol, Sens. Josh Hawley (R-Mo.) and Bernie Sanders (I-Vt.) have formed a right-left alliance insisting on direct payments. 

Still, Goldman Sachs economist Alec Phillips in a Tuesday note projected “it is slightly more likely than not” that Congress passes a package “similar” to the $748 billion package laid out by the bipartisan group. 

And that could be the final installment of relief from Congress. “With warming weather and vaccine distribution well underway by that point,” Phillips writes, “another package worth several hundred billion dollars seems unlikely.”

Market movers

Stocks rise on stimulus optimism.

The S&P 500 snapped a four-day losing streak.: “The Dow Jones Industrial Average gained 337.76 points, or 1.1 percent, to 30,199.31. The S&P 500 advanced 1.3 percent, or 47.13 points, to 3,694.62. The Nasdaq Composite climbed 1.3 percent, or 155.02 points, to 12,595.06, reaching a new record closing high,” CNBC’s Fred Imbert and Jesse Pound report.

“Apple led the Dow higher, jumping 5 percent after Nikkei reported the company will increase iPhone production by about 30 percent in the first half of 2021. All 11 S&P 500 sectors registered gains on Tuesday, led by energy and utilities.”

What to expect from the Fed meeting: “The Fed may see a brighter long-term outlook when it releases its economic forecasts Wednesday due to vaccine developments, but it also has the opportunity to disappoint at least some investors who are expecting immediate changes in its bond buying program,” CNBC’s Patti Domm reports.

“The market has been divided about whether the Fed would extend the duration of its $80 billion Treasury purchases, meaning increase the purchases at the long end, like the 10-year note and 30-year bond. Theoretically, that should help keep down the longer term rates that impact mortgages and other loans.”

Macro monitor

Small-business owners still see the worst ahead.

The jarring numbers underline the reality behind stimulus talks: “Half of small business owners say their operations would permanently close within a year unless the business environment improves, the U.S. Chamber of Commerce said,” Reuters’s David Lawder reports.

“A new U.S. Chamber-MetLife poll of small businesses taken from Oct. 30-Nov. 10 showed that 74 percent of the owners said they need further government assistance to weather the pandemic. That percentage rises to 81 percent for minority-owned businesses. The quarterly poll found that the 62 percent of small business owners fear that the worst is still to come with covid-19’s economic impact. Only 40 percent said they believe their small businesses can operate indefinitely during the current business environment.”

Federal aid for tenants nearing a cutoff: “Almost from the moment the pandemic spread across the United States, advocacy groups have warned that the economic fallout could cause mass displacement of low-income tenants. In response, more than 400 state and local governments have used money from the federal Cares Act to set up funds to cover at least $4.3 billion in rental assistance …,” the New York Times’s Conor Dougherty reports of organizations scrambling to spend such aid before a Dec. 30 deadline

“But now many jurisdictions are reporting trouble spending it, and with barely two weeks left in the year, they are on pace to have more than $300 million left over, according to the coalition’s database. In a pattern that predated the pandemic, the programs have been complicated by bureaucratic hurdles, competing budget demands and a reluctance among landlords to take part.”

Coronavirus fallout

FDA clears path for a second vaccine.

Moderna’s shot may soon join Pfizer’s: “The FDA is likely to authorize the Moderna vaccine as soon as Friday,” Carolyn Y. Johnson reports.

“Anticipating that decision shortly, Gen. Gustave Perna, who is overseeing the federal effort to distribute vaccines, said Monday that the United States was preparing to ship almost 6 million doses of the Moderna vaccines to 3,285 locations in the first week … Assessing Moderna’s vaccine, regulators said the two-shot regimen was 94 percent effective at preventing disease in the trial, and particularly effective against severe disease. There were 30 cases of severe covid-19 in the trial, none of them in the group that got the vaccine.”

  • U.S., Pfizer negotiate for more doses next year. From the New York Times: “The Trump administration is negotiating a deal to use its power to free up supplies of raw materials to help Pfizer produce tens of millions of additional doses of its Covid-19 vaccine for Americans in the first half of next year… Should an agreement be struck, it could at least partially remedy a looming shortage that the administration itself arguably helped create by not pre-ordering more doses of the vaccine Pfizer developed with its German partner, BioNTech.”

From the U.S.:

  • FDA authorizes at-home test. “The Food and Drug Administration on Tuesday authorized the first rapid coronavirus test that can be taken at home without prescription and that yields immediate results,” William Wan reports. “The test could be a vital tool in the country’s fight against the virus — especially in the months before most Americans are vaccinated. Unlike previous home tests, this version does not require samples to be sent to a lab and can be taken without doctor’s orders by anyone older than 2.”
  • Wall Street’s banner year cushions blow to New York’s budget: New York collected $985 million more revenue than expected from July through October, the first four months of the fiscal year, and officials have cut their estimate for next year’s budget shortfall. That bodes well for the city as it prepares to borrow $1.5 billion Wednesday to refinance higher-cost debt, with its 10-year bond yields dropping to about 0.3 percentage point above what top-rated governments pay, indicating little concern about any long-term risks,” Bloomberg News’s Martin Z Braun reports.
  • USPS faces historic crush of packages: “As Americans increasingly shop online because of the pandemic, private express carriers FedEx and UPS have cut off delivery service for some retailers, sending massive volumes of packages to the Postal Service. That has led to widespread delays and pushed the nation’s mail agency to the brink,” Hannah Denham and Jacob Bogage report.

From the corporate front:

  • Wall Street swoons over cold storage: “As countries prepare to distribute hundreds of millions of vaccines — some of which require storage as cold as the South Pole in winter and meticulous handling — the highly specialized operations of companies like PCI Pharma are in heavy demand. And Wall Street, which likes nothing better than a hot trade with the potential for big profits, is rushing to grab a piece of the action,” the Times’s Kate Kelly reports.
  • Delta Air Lines is in talks to add more quarantine-free flights: “The U.S. carrier is rolling out two quarantine-free flights this week to Europe, where passengers are required to be tested for the coronavirus … Even as vaccinations kick off this week in the United States and Canada, airlines see testing as the fastest way to resume international travel without quarantines since inoculation campaigns take time,” Reuters’s Allison Lampert reports.
  • CBS is having trouble selling all of its Super Bowl slots: “Many companies are wary of paying CBS roughly $5.5 million for a 30-second slot when the pandemic has complicated the annual day of football and feasting … In mid-December, CBS still had dozens of openings … Fox, the broadcaster of last year’s game, had sold all of its 77 national advertising slots by Thanksgiving 2019,” the Times’s Tiffany Hsu reports.

The transition

Biden can move his economic agenda without Congress.

Winning the Georgia runoffs would be key, but administrative actions could be a fallback: “Much of this work will fall to the incoming labor secretary, whose department has the authority to issue regulations and initiate enforcement actions that could affect millions of workers and billions of dollars in income,” the Times’s Noam Scheiber reports.

“Biden’s labor secretary could substantially expand eligibility for time-and-a-half overtime pay. In 2016, the Obama administration extended that eligibility to salaried workers making less than about $47,500 a year, but a federal court suspended the Obama rule, and Trump’s Labor Department set the cutoff at roughly $35,500 rather than continue to appeal.”

  • There’s also steps a Biden administration can take regarding labor relations: “Under Biden, the National Labor Relations Board is likely to be far more aggressive in punishing employers that appear to break the law while fighting union campaigns. It can issue a regulation making it easier for the employees of contractors and franchises to hold parent companies accountable for violations of their labor rights, such as firing workers who try to unionize.”
President-elect Joe Biden has chosen Pete Buttigieg, a former rival for the Democratic presidential nomination, to lead the U.S. Transportation Department. (Reuters)

Other transition news:

Pete Buttigieg will be Transportation secretary, Jennifer Granholm will be Energy secretary: “The move elevates Buttigieg to a key role in the incoming administration’s expected push to rebuild the nation’s infrastructure and economy and address climate change. Granholm, meanwhile, has been a strong voice for zero-emissions vehicles, arguing that the country must develop alternative energy technologies,” Michael Laris, Ian Duncan and Seung Min Kim report.

  • Biden is also tapping former EPA chief Gina McCarthy to be White House climate czar: “McCarthy, 66, who spearheaded the Obama administration’s efforts to curb greenhouse gases from power plants and vehicles, will be responsible for implementing Biden’s plan to weave climate policy throughout the federal government as the first-ever ‘national climate adviser,’” Juliet Eilperin and Brady Dennis report.

Janet Yellen and Wally Adeyemo met with the National Association of Manufacturers executive committee: In a virtual roundtable, Biden’s top two Treasury designees discussed the need for Congress to Congress to pass “robust relief package,” per a transition team statement. “Yellen thanked NAM’s leadership for a productive discussion and expressed the incoming administration’s interest in maintaining an open dialogue and close working relationship.”

The regulators

SEC loses top markets regulator.

Turnover continues at the commission: “Brett Redfearn will leave his job as director of the SEC’s trading and markets division at the end of December, the commission said Tuesday. He is leaving along with his boss, Chairman Jay Clayton, who appointed Redfearn to the role in October 2017,” the WSJ’s Alexander Osipovich reports.

“Together, Clayton and Redfearn sought to reshape the plumbing of the U.S. stock market, particularly in the arcane area of stock-market data. Many brokers and traders complain that fees for essential data on stock prices, quotes and trading activity are excessive and that big exchange operators like the New York Stock Exchange and Nasdaq Inc. have too much power to set them.”

  • Exchanges pushed back on those efforts: “NYSE, owned by Intercontinental Exchange Inc., and Nasdaq reject such criticism and say their fees are fair and reasonable. They pushed back against many of Redfearn’s market-data reforms, which threatened a key business for them, and they repeatedly sued the SEC to block initiatives that he supported, winning some key court victories.”
  • What’s next?: “Redfearn said he didn’t have any immediate plans to start a new job after leaving the SEC. He is the latest of a wave of top SEC staffers who have recently left or announced plans to depart at the end of the year, including the agency’s top enforcement official, Stephanie Avakian. Such turnover is common at the SEC during changes of presidential administrations.”

The Fed is joining a global climate change group: “The Fed’s membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) comes after a yearlong collaboration, the central bank said. It had been the only major global central bank besides the Reserve Bank of India that was not a member of the NGFS,” Reuters’s Katanga Johnson reports.

“For years, the Fed has stayed on the sidelines as other central banks pushed to use their regulatory and research clout to mitigate the effects of global warming, including potentially abrupt price changes from climate-related disasters that could reverberate through financial markets.”

Russian hack

Investors sold off $280 million in shares of a software company before the Russia hack was announced.

The moves came just days before it was revealed that Russians had breached SolarWinds in the attack: “The timing of the trades raises questions about whether the investors used inside information to avoid major losses related to the attack. SolarWinds’s share price has plunged roughly 22 percent since the company disclosed its role in the breach Sunday night,” Drew Harwell and Douglas MacMillan report.

“On Dec. 8, the cybersecurity firm FireEye announced that hackers had broken into its servers and stolen sensitive security-testing tools as part of a breach they’d discovered in recent weeks. FireEye determined by Friday that SolarWinds’ updates had been corrupted and contacted the company shortly after, according to people familiar with the matter. A SolarWinds spokesman declined to discuss timing or answer further questions about the trades.”

  • It’s unknown when the company’s executives became aware of the hack: “But a former enforcement official at the U.S. Securities and Exchange Commission and an accounting expert both said the trades would likely spark an investigation by federal securities watchdogs into whether they amounted to insider trading.”

Pocket change

MacKenzie Scott has given away $4.2 billion in four months: “The world’s 18th-richest person outlined the latest contributions in a blog post Tuesday, saying she asked her team to figure out how to give away her fortune faster. Scott’s wealth has climbed $23.6 billion this year to $60.7 billion, according to the Bloomberg Billionaires Index, as Amazon.com Inc., the primary source of her fortune, has surged,” Bloomberg News’s Sophie Alexander and Ben Steverman report.

“Scott’s gifts this year approach $6 billion, which ‘has to be one of the biggest annual distributions by a living individual’ to working charities, according to Melissa Berman, chief executive officer of Rockefeller Philanthropy Advisors.”

The European Union announced on Dec. 15, new regulations for U.S. tech giants like Google, Facebook, Apple and Amazon. (Reuters)

E.U. unveils sweeping new rules that could change big tech.

Both sides of the Atlantic continue to up the pressure on large tech companies: “The new rules would overhaul the basic legal framework through which companies conduct their digital business in the vast, wealthy E.U. market, requiring platforms to police content far more aggressively and banning them from using their vast stores of data to unfairly overtake their competitors,” Michael Birnbaum reports.

“If enacted — a process that could take years — the rules would touch every company that conducts business on the Internet within the 27-nation European Union, from the smallest to the gargantuan. But the very biggest companies, almost all of them American, would be subject to particularly aggressive rules. Violations could be punished with fines of up to 10 percent of their global business turnover — in the case of Amazon, that would mean up to $28 billion. Repeated violations could be punished with an order to break up businesses.”

  • U.S. tech companies had mixed reactions: “We are concerned that they appear to specifically target a handful of companies and make it harder to develop new products to support small businesses in Europe,” Karan Bhatia, Google’s vice president of government affairs and public policy, said in a statement. The proposals are “on the right track to help preserve what is good about the internet,” tweeted Facebook’s head of E.U. affairs, Aura Salla. Apple declined to comment.

Peter Nygard indicted in sex-trafficking probe: “The Canadian fashion and retail mogul was arrested Monday in Canada, according to prosecutors in the U.S. attorney’s office for the Southern District of New York. Federal prosecutors accused him of years of criminal conduct involving dozens of victims in the U.S., Canada and the Bahamas. He faces nine criminal charges,” the WSJ’s Ben Chapman reports.

“Nygard International filed for bankruptcy in March. In April a Canadian judge allowed an accounting firm to sell and liquidate part of the company. Before filing for bankruptcy, the company had about 1,450 employees and operated 170 of its own stores in North America and over 6,000 shops inside department stores.”

Trump tracker

Judge orders Trump Organization to give more records to N.Y. Attorney General. 

The documents relate to a property at the center of a civil investigation. “The documents and communications at issue could help investigators answer questions about a conservation easement that was granted several years ago at the Seven Springs estate in suburban New York’s Westchester Country, a move that netted [Trump’s] company a $21 million tax deduction,” Shayna Jacobs reports. 

“The materials, which Trump’s lawyers had sought to shield, include messages exchanged between an engineer and a land-use lawyer who worked on Trump’s behalf. The company’s lawyers argued unsuccessfully that those records were covered by attorney-client privilege. The Trump Organization was ordered to provide the documents by Friday, though New York Supreme Court Justice Arthur Engoron said he would consider an extension.”

Daybook

  • The Feds Federal Open Market Committee (FOMC) begins its two-day meeting
  • Fed Chair Jerome H. Powell meets the press after the FOMC meeting concludes
  • The Labor Department reports weekly jobless claims
  • FedEx, RiteAid and BlackBerry are among the notable companies reporting their earnings, per Kiplinger
  • Fed Governor Lael Brainard gives a speech about climate change and financial regulation at the Center for American Progress
  • Nike and Darden Restaurants are among the notable companies reporting their earnings

The funnies

Bull session

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