Week Ahead - Brexit & The Extra Mile

 1/ As Brexit talks enter what might be their last few hours, the key hurdle to overcome is how to agree on what the EU calls 'managed divergence' and the UK has dubbed 'lightning tariffs'. Despite the doom and gloom, there are signs the sides aren't quite as far apart as appears.— Nick Gutteridge (@nickgutteridge) December 13, 2020 

The short-term spending bill was necessary because none of the 12 annual appropriations bills for the fiscal year that began Oct. 1 have been enacted.

Negotiations on an omnibus package wrapping them together continue, and lawmakers are hoping to use that as the vehicle for enacting more than $900 billion in coronavirus-related aid.

The virus-relief package has been the subject of fruitless negotiations since July. Before the election, Trump and Democrats were close to agreeing on a $2 trillion stimulus package, but the president has been largely absent in pushing for relief since his defeat.

There is still no agreement in Congress on the provisions to shield businesses from Covid-19 related lawsuits that Republicans want and to distribute $160 billion in proposed state and local aid that GOP members oppose. Senate Majority Leader Mitch McConnell on Friday again suggested leaving those items out of the stimulus initiative.

The broader spending bill appears to be more on track. Senate Appropriations Chairman Richard Shelby, an Alabama Republican said it probably won’t be finished until next week. He said the main sticking point is how to handle $12.5 billion for the Department of Veterans Affairs to upgrade its health care for veterans.

Shelby has said he agrees with Democrats that the funding should be in addition to the $1.4 trillion budget cap for the year, but the White House and House Republicans oppose the move, citing deficit concerns.

“I think the obstacle right now is at least a hurdle to get over the VA,” Shelby said Friday. “And I think we could see open field after that, but maybe not.”

Other points of contention involve $2 billion for Trump’s border wall, as well as funding for immigration raids and detention. Shelby said appropriators are nearing an agreement on that issue, but it’s not yet clear whether it will “satisfy everybody.”

Montana Senator Jon Tester, the top Democrat on the subcommittee overseeing the Homeland Security Department, told reporters he thinks differences on the wall and on immigration can be resolved.

“I don’t anticipate that’ll be a problem,” he said. “I think we could have gotten this done by the 11th if we hadn’t gotten into the habit of setting deadlines and then never meeting them.”

 Amongst all the other news yesterday, another 1.4 m Americans filed for unemployment benefits last week. Serious shift in the wrong direction! @OxfordEconomics via @SoberLook pic.twitter.com/MxqI6lvdV6— Adam Tooze (@adam_tooze) December 11, 2020 

"Eviction notices are piling up on sheriffs’ desks across the country to be executed if the moratorium is not extended or renters don’t receive help with the back rent they owe,"

The move to draft text for at least some stimulus relief comes after bipartisan efforts to reach a deal took a hit Thursday as the stalemate between House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell continued.

McConnell has continued to insist party leaders set aside their disagreements on state and local funding as well as liability protections for businesses and pass a more targeted relief proposal. But Pelosi and Senate Minority Leader Chuck Schumer, have dismissed that idea, saying local governments are desperately in need of additional relief.

Congress has only days to reach agreement on a coronavirus relief measure in order to attach it to a $1.4 trillion omnibus package that must pass by Dec. 18 in order to avert a government shutdown. Both Pelosi and McConnell have said the best — and likely only way — to get a stimulus deal in the waning days of this Congress is by attaching it to the omnibus.

...with CPI running at -0.7% YoY, it is hard to see the SNB doing anything other than keeping the policy rate at -0.75% and threatening to intervene more against the highly valued Swiss Franc.

If any kind of progress can be made on Brexit, the very positive developments in the European fiscal space should be a net positive for EUR/CHF – reducing risks of fragmentation and the political risk premium built into the EUR.