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Last-ditch attempt for stimulus deal, virus latest, and Goldman Sachs says not to worry so much about an election delay.

Another go

House Democrats have started drafting a new stimulus bill which included roughly $2.4 trillion of spending, making it $1 trillion smaller than the plan which was passed in May. The proposal could be voted on in the House next week, but it's very unlikely to be backed in the Senate which in August couldn't find enough support among Republicans for $1 trillion of stimulus. While House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin expressed willingness to restart talks on a compromise, members of Congress on both sides were pessimistic an agreement could be reached

Treatment 

The battle against coronavirus is leading to more breakthroughs on treatment as the race for a vaccine continues. Studies have identified a genetic variation in a significant minority of severe cases that can be effectively treated with interferon-based therapies. Europe yesterday saw a record number of new infections in the U.K. and France. But the latest resurgence has been accompanied with a much lower death rate which may be due to better treatment.

Pushback 

Senate Majority Leader Mitch McConnell said on Twitter that the winner of the Nov. 3 election will be inaugurated on Jan. 20, and that the transition will be orderly just as it has been every four years since 1792. His comments come as lawmakers from both parties reaffirmed their commitment to the democratic process in response to President Donald Trump's refusal to commit to an orderly transition. Goldman Sachs Group Inc. economists are suggesting that market fear over the election could be overdone, saying that while a delayed outcome is a "tail risk" the result of the vote should be clear on the night of Nov. 3. 

Markets drop

Yesterday's higher close in U.S. indexes driven by stimulus hopes is fading today, with global equites generally on the back foot. Overnight, the MSCI Asia Pacific Index added 0.4% while Japan's Topix index closed 0.5% higher. In Europe, the Stoxx 600 Index was 0.6% lower at 5:50 a.m. Eastern Time as investors favored defensive positions with the rising risk of further lockdowns. S&P 500 futures were pointing to a small drop at the open, the 10-year Treasury yield was at 0.663% and gold was slightly lower. 

Coming up...

U.S. durable goods orders for August are at 8:30 a.m. The recent rush of Fed speakers is slowing down, with only New York Fed President John Williams -- speaking at two events -- and Kansas City Fed President Esther George scheduled today. The latest Baker-Hughes rig count is at 1:00 p.m., with oil heading for a third weekly decline in four. Trump holds a rally in Virginia. 

What we've been reading

This is what's caught our eye over the last 24 hours.

And finally, here's what Emily's interested in this morning

Since the March shock, it's been one of the smartest simple trades in the U.S. rates market. Buy inflation-linked bonds, because the economy isn't headed for another Great Depression and it's a cheap hedge against a pick up in price pressures.

Some also thought, what with all this stimulus, inflation will be back in force as soon as the economy is back on its feet.

Those more-ambitious reflation bets were always going to struggle while the pandemic's got the upper hand. It's hard to spot their next catalyst, with inflation expectations -- measured by breakeven rates -- already restored to their pre-March levels. And we're past the Federal Reserve's big announcement, that it's now targeting an average 2% inflation rate, meaning it will tolerate more than 2% for a while to make up for previous undershoots (which span much of the past decade.)

What the market needs to see now is either the economic recovery taking the baton, or further action to keep it from backsliding. Unfortunately, neither has happened so far in the U.S. A Citi Economic Surprise index shows U.S. economic data are no longer beating expectations as consistently as they did.

As for further action, the Fed isn't offering new stimulus, at least not yet. Chairman Jerome Powell made clear again in his testimony on Capitol Hill this week that the onus now lies on the government to spend more. An agreement from lawmakers on the widely-anticipated Phase 4 fiscal package looks less and less likely as GOP members recalibrate their priorities from economic support to filling a Supreme Court seat.

The Fed probably still has the best shot among its peers in the largest developed economies of hitting its inflation goal, but that's not saying a lot.

And inflation markets don't seem to be keeping the faith. Breakevens have pulled back this month, and the largest exchange-traded fund for U.S. Treasury inflation-protected securities saw its heaviest daily outflow since April, after five months of pretty consistently reaping new investments.

For its part, BlackRock Investment Institute still thinks the market is underestimating inflation risks, and sees three forces pushing the average yearly pace of consumer price inflation into the range of 2.5%-3% between 2025 and 2030 (versus the market's expectation of close to 1.6%).

One is rising global production costs as supply chains are reshaped, and another is the shift in central bank policy frameworks to allow overshoots of inflation targets. The third is "greater political pressure for keeping rates low in a high-debt environment," according to a note from BII strategists this week.

Follow Bloomberg's Emily Barrett on Twitter at @notthatECB

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