The Finance 202: Economic relief talks face do-or-die moment as layoffs mount

But Senate Majority Leader Mitch McConnell (R-Ky.) threw cold water on the possibility that a breakthrough could earn support from his members, who remain resistant to a package costing more than $1 trillion. McConnell said the sides remain “very, very far apart.” 

Pelosi on Wednesday agreed to postpone voting on a $2.2 trillion bill to continue talks with Mnuchin in hopes of a last-minute breakthrough. Mnuchin countered with a $1.62 trillion proposal, “offering more state and local assistance than GOP negotiators have to date in a sign of potential progress toward a deal,” Roll Call’s Lindsey McPherson reports. 

Per McPherson, “A person briefed on Mnuchin’s plan said it included $250 billion for state and local governments, which is $186 billion less than Democrats want in their latest $2.2 trillion package, but $100 billion more than the White House offered in talks that broke down over the summer.” The Treasury secretary offered to extend federal unemployment benefits at $400 a week through the end of the year. And Mnuchin says a deal would include another round of $1,200 stimulus checks:  

As the window for action begins to close in Washington, conditions for low- and middle-income earners continue deteriorating.

Indeed, the K-shaped recovery appears to be in full effect.

More financially secure people are enjoying the benefits of an ongoing recovery.

The stock market just closed out its second-straight quarter of major gains. In the last three months, “the S&P 500 and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively,” the Wall Street Journal’s Gunjan Banerji writes. “The advances built on even bigger gains in the previous period, capping the best two-quarter performance since 2009. Both indexes are up more than 26% since the end of March.”

And homeowners are benefiting from a red-hot housing market, as those in a position to buy move to take advantage of basement-dwelling borrowing rates. Pending home sales notched a record in August, as Heather Long notes:

Yet as investors in publicly traded companies see gains, thousands of their workers are seeing pink slips. Just this week:

  • Disney announced it will fire 28,000 workers across its U.S. theme-park division. Roughly two-thirds of them are part-time employees.
  • American Airlines will start furloughing 19,000 workers immediately, blaming Washington’s failure to reach an agreement on a relief package that could have included $25 billion in aid to airlines. It represented the leading edge of what could amount to 30,000 job losses in the industry.
  • Royal Dutch Shell said it will cut up to 9,000 jobs, part of a wholesale corporate overhaul as it moves toward low-carbon energy.
  • Allstate is laying off 3,800 employees, or about 8 percent of its workforce.
  • Dow Inc. said it will cut 6 percent from its global “workforce costs,” without specifying a number of employees affected.
  • Marathon Petroleum, the oil refining giant, started laying off workers, with as many as 200 targeted for cuts.

Across the economy, this recession is hitting poorer households harder than any in generations.

“While the nation overall has regained nearly half of the lost jobs, several key demographic groups have recovered more slowly, including mothers of school-age children, Black men, Black women, Hispanic men, Asian Americans, younger Americans (ages 25 to 34) and people without college degrees,” a deep analysis of government employment data by Heather, Andrew Van Dam, Alyssa Fowers and Leslie Shapiro finds. (The piece is a marvel of data-based reporting paired with interactive graphics and tells the story of the jagged line the economic crisis cut through the workforce as well as anything I’ve read. Do yourself a favor and make some time for it.)

“No other recession in modern history has so pummeled society’s most vulnerable,” they write, noting that the Great Recession by contrast delivered pain across the income spectrum.

At the peak of the crisis, “low-wage jobs were lost at about eight times the rate of high-wage ones, The Post found,” per our colleagues. “The devastation was deepest among the lowest-paid, but middle-class jobs were not spared. A clear trend emerged: The less workers earned at their job, the more likely they were to lose it as businesses across the country closed.”

“By the end of the summer, the downturn was largely over for the wealthy — white-collar jobs had mostly rebounded, along with home values and stock prices. The shift to remote work strongly favored more-educated workers, with as many as 6 in 10 college-educated employees working from home at the outset of the crisis, compared with about 1 in 7 who have only high school diplomas.” The weekly report on initial unemployment claims, out this morning, will offer a fresh insight into the state of the jobs market, but economists expect the claims to remain in the range of last week’s 870,000. 

From Jed Kolko, chief economist for Indeed: 

To make matters worse for those on the brink, potentially millions of them are now facing the prospect of “utility shut-offs and fast-growing debts they may never be able to repay,” Tony Romm reports. Only 21 states and the District of Columbia still have bans on utility shutoffs in place, which “leaves roughly 179 million Americans at risk of losing service even as the economy continues sputtering.”

An earlier agreement on new relief could have lifted Trump’s reelection prospects.

If Trump and down-ballot Republicans suffer big losses, political scientists will study their decision to embrace fiscal austerity just at the moment that keeping the spigots open might have given their political hopes a major boost.

Oxford Economics now projects Trump will lose the election, gathering 220 electoral votes to Democratic nominee Joe Biden’s 318. But the firm sees the president losing the popular vote by less than five points, a narrower margin than it predicted in May. The firm’s economists write in a note that a “stronger-than-expected fiscally driven economic rebound” has closed the gap somewhat.

“A recessionary unemployment rate and depressed incomes following the expiry of government aid programs will push the pocketbook votes toward Joe Biden, while social unrest will likely boost voter turnout, giving an edge to Democrats,” the Oxford team writes.

In other words, while the economy “matters less today than it did ten years ago, and today, specifically, noneconomic factors are particularly important,” Oxford chief U.S. economist Gregory Daco tells me, “we’re running out of stimulus at the worst time in terms of [Trump’s reelection hopes], and unemployment is still at a recessionary rate.”

Market movers

Dow rebounds more than 300 points.

Hope springs eternal for stimulus deal: “The Dow Jones industrial average seesawed but closed up 329 points, or 1.2 percent, at 27,781.70. The S&P 500-stock index climbed more than 27 points, or 0.8 percent, to settle at 3,363.00. The tech-heavy Nasdaq advanced 82 points, or 0.7 percent, to settle at 11,167.51,” Taylor Telford and Hannah Denham report.

“September is a historically tough month for stocks, but this one was particularly volatile following months of dizzying highs. The major U.S. indexes posted their first monthly losses since March. The S&P 500 slumped nearly 4 percent, the Dow erased 2.3 percent, and steep sell-offs in tech shaved 4.9 percent off the Nasdaq.”

Fed’s low-rate strategy stokes fears of asset bubbles: “Those concerns flared when Dallas Fed President Robert Kaplan dissented from the central bank’s Sept. 16 decision to spell out those promises. The Fed committed to hold short-term rates near zero until inflation reaches 2 percent and is likely to stay somewhat above that level—something most officials don’t see happening in the next three years,” the Journal’s Nick Timiraos reports.

“The question of whether the Fed should raise rates to prevent bubbles from forming has long vexed officials. Kaplan’s concerns show how the lack of consensus could one day sow doubts over the central bank’s ability or willingness to follow through on the new lower-for-longer rate framework Fed Chairman Jerome Powell unveiled last month.”

Palantir debuts at $17 billion value: “The data analytics company opened at $10 on the New York Stock Exchange, above the reference price of $7.25 that was set for the stock. Palantir listed its shares directly on the exchange, rather than raising capital through an initial public offering,” Bloomberg News’s Lizette Chapman reports.

“Palantir popped about 10 percent to a market value of $18 billion after the first trades. It failed to capture the $20 billion valuation private investors had given Palantir since at least 2015.”

Coronavirus fallout

From the United States:

  • Trump will still hold weekend rallies in Wisconsin as cases surge there: “The White House coronavirus task force has further flagged La Crosse and Green Bay, the metropolitan areas where Trump plans to gather thousands of supporters Saturday, as coronavirus ‘red zones,’ the highest level of concern for community spread of the virus, according to a report from the group released Sunday and obtained by The Washington Post,” Michael Scherer and Lena H. Sun report.
  • Mississippi governor lifts mask mandate: “Gov. Tate Reeves (R) announced that he will continue to urge Mississippians to wear masks in public, but will not extend an executive order requiring them to do so,” Antonia Farzan reports.
  • New York’s restaurants say they’ll struggle to make limited indoor dining work: “A mandated cap on capacity will guarantee that three out of four tables stay empty. And as fall turns to winter, outdoor dining will become even less attractive. Everyone agrees more establishments will close for good,” Bloomberg News’s Kate Krader reports.

From the corporate front:

  • CDC extends ban on cruising through October: “The Centers for Disease Control and Prevention extended its ban on passenger cruising from U.S. ports through Oct. 31 after the White House reportedly overruled calls for a further suspension,” CNBC’s Will Feuer reports. 
  • Remdesivir is on track to make billions for Gilead: “The most conclusive evidence shows it reduces hospital stays from 15 to 11 days but does not significantly reduce the odds of dying of the coronavirus. And advocates are also questioning whether Gilead’s $3,120 price per course of treatment is justified, based on its modest benefits and previous taxpayer investments,” Christopher Rowland reports.
  • Bayer pledges to cut costs: “Bayer AG slumped after the agriculture and pharma giant said it would have to slash costs as the pandemic’s impact on farm commodities extends into next year, further undermining the rationale for its $63 billion purchase of Monsanto Co,” Bloomberg News’s Tim Loh reports.

Campaign 2020

Global banks ramp up preparations for election chaos.

The financial sector is preparing for a possible long fight over the results: “Over the past two weeks, major banks have run simulations to ensure they could cope with a spike in market, liquidity and credit risks, and have been advising clients on precautionary hedges and capital raising strategies if a contested election result on Nov. 3 leads funding markets to dry up,” Reuters’s Matt Scuffham reports.

“We’re starting to talk not just to clients, but also to our staff, about the potential that you might see a longer than expected period (with no clear result) because of the large number of mail-in votes,” said Itay Tuchman, Citigroup’s global head of FX. “We’re getting prepared for that.”

Biden prepares massive ad blitz: “Biden’s campaign alone has reserved nearly a quarter billion dollars in advertising over the next five weeks in 18 swing states. Outside groups that support Biden have blocked off $112 million in their own airtime,” the Hill’s Reid Wilson reports.

“Trump’s campaign, which spent heavily on advertising earlier in the year, is set to spend far less. So far, the campaign has reserved $130 million in airtime in 13 states, according to data provided by one Democrat and one Republican watching the advertising market.”

BET founder Robert Johnson says he’s unsure how Biden will run the country: “ ‘Where I come out as a businessman, I will take the devil I know over the devil I don’t know anytime of the week,’ ” Johnson said on ‘Squawk Box,’ ” CNBC’s Kevin Stankiewicz reports.

“Johnson, when pressed, refused to outright endorse Trump, instead saying as a longtime corporate executive he knows how the president will react to important issues of the day such as coronavirus and he does not have a handle on Biden would run the country.”

Pocket change

FAA head upbeat after flying 737 Max.

Boeing’s embattled plane still has no timetable to return: “FAA Administrator Steve Dickson, a former commercial and military pilot, last year said he wouldn’t clear the planes for service unless he flew the jet himself. The 737 Max jets, Boeing’s bestseller, have been grounded worldwide since March 2019 after crashes in Ethiopia and Indonesia killed 346 people,” CNBC’s Leslie Josephs reports.

“Boeing has since made a number of changes to the planes. Pilots in both crashes struggled with an automated flight-control system, which the manufacturer has since made less powerful. ‘I liked what I saw,’ Dickson told reporters, adding that he hasn’t flown a 737 in almost 15 years.”

NextEra CEO rules out hostile M&A after offer to Duke Energy: “James Robo said that the largest U.S. power utility would not embark on a hostile takeover, a day after reports surfaced it had made an approach to Duke Energy Corp. in what would be the sector’s biggest-ever acquisition,” Reuters’s David French reports.

Nikola executives seek to calm investor anxiety: “Nikola Executive Chairman Steve Girsky and CEO Mark Russell said the company’s production timeline and factory plans remain on track, even as controversy over Milton’s departure appears to call into question Nikola’s $2 billion deal with General Motors that was scheduled to close Tuesday. While Russell acknowledged that the negotiations continue, he declined to discuss more details,” CNBC’s Michael Wayland reports.

Disgraced ex-UAW president Williams pleads guilty in corruption saga: Former United Auto Workers President Dennis Williams pleaded guilty to embezzling hundreds of thousands of dollars from the union, giving federal prosecutors a second landmark conviction in a years-long crackdown on auto industry corruption,” the Detroit News’s Robert Snell reports.

“Williams, 67, of Corona, California, pleaded guilty nearly four months after Gary Jones, his successor, admitted to helping steal more than $1 million from rank-and-file workers. They are the highest-ranking union leaders convicted in a corruption scandal that has pushed one of the nation’s most powerful unions to the brink of federal takeover.”

The regulators

Fed extends restrictions on big banks.

The central bank cited the need to conserve capital: “The Fed said it would maintain prohibitions on share buybacks and a cap on dividend payments by 33 banks with more than $100 billion in assets until the end of year. The restrictions, imposed for the third quarter, were due to expire Wednesday,” WSJ’s  Andrew Ackerman reports.

“The action is intended to ‘ensure that large banks maintain a high level of capital resilience,’ the central bank said in a statement. ‘The capital positions of large banks have remained strong during the third quarter while such restrictions were in place.’ In another sign of the uncertainty facing the industry and the broader economy, the Fed has required big banks to undergo a second round of so-called stress tests later this year, based on two coronavirus-related recession scenarios. Results of the tests, designed to ensure banks can continue to lend in a crisis, will be announced by the end of the year.”

Industry eager for Judge Amy Coney Barrett’s views on financial regulations: “Trump’s nominee to replace the late Justice Ruth Bader Ginsburg could play a crucial role in two finance-related cases on the Supreme Court’s docket this term,” The Hill’s Sylvan Lane reports.

“Barrett, a conservative in the mold of the late Justice Antonin Scalia, has issued just a handful of opinions since joining the 7th Circuit Court of Appeals in 2017. Without a lengthy judicial record on financial regulation, observers will be watching her upcoming confirmation hearing closely for any clues about how she might rule.”


  • The Labor Department reports the latest weekly jobless claims.
  • PepsiCo, Bed Bath & Beyond and Conagra Brands are among the notable companies reporting their earnings.
  • The Labor Department releases the monthly jobs report, the last before Election Day.

The funnies

Bull session

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