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Five Things
Bloomberg

Stimulus agreement nears, Brexit talks on the brink, and Covid getting worse before it gets better. 

Details 

More details on the $908 billion bipartisan stimulus package are expected to be revealed later today, with one Republican senator backing the proposal saying he is confident Senate Majority Leader Mitch McConnell and President Donald Trump will come on board. Markets are increasingly expecting a deal to be done, with last week's disappointing jobless data seen as helping force GOP holdouts to back the plan. 

11th hour

While it might seem that Brexit talks have been only hours away from collapsing for the past four years, today might actually be crunch time. U.K. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen's phone conversation led to talks restarting over the weekend, with both sides saying "significant differences" remain. The leaders are due to speak again later today to check if any fresh progress has been made in the talks which were originally scheduled to finish on Oct. 15. The British pound extended its drop to as much as 1.6% this morning after The Sun newspaper in London reported that Johnson was ready to pull out of negotiations. 

Worse 

U.S. Health and Human Services chief Alex Azar said that all Americans who want one will be able to get a vaccine by the second quarter of next year, with the Food and Drug Administration meeting on whether to grant emergency authorization of a shot developed by Pfizer Inc. and BioNTech SE on Thursday. Until there is widespread uptake of the vaccines, the virus will continue to spread, with all signs pointing to a worsening situation in the short term. Scott Gottlieb, former commissioner of the FDA and a Pfizer board member, said that he sees the U.S. potentially reaching 400,000 deaths from the virus by the end of January. 

Markets slip

Global stocks are generally weaker this morning after U.S. markets closed at an all-time high on Friday on stimulus optimism. Overnight the MSCI Asia Pacific Index slipped 0.3% while Japan's Topix index closed 0.9% lower. In Europe, the Stoxx 600 Index was down 0.4% at 5:50 a.m. Eastern Time, with London's FTSE 100 gaining as the pound dropped. S&P 500 futures pointed to some losses at the open and the 10-year Treasury yield was at 0.943%. Oil fell from a nine-month high and gold was lower. 

Coming up...

It is a fairly quiet start to the week on the economic data front, with October consumer credit numbers due at 3:00 p.m. the only U.S. data point of note. Today is the last day to register to vote in the crucial Georgia Senate runoff vote, an election which will decide the balance of power in the U.S. Senate. Coupa Software Inc. and Toll Brothers Inc. are among the companies reporting earnings. 

What we've been reading

This is what's caught our eye over the weekend.

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

There's a frequent trope that says "bad news is good news" for the stock market. The underlying premise is that if economic data comes in worse than expected, then we'll get some kind of economic stimulus that ultimately lifts equity prices. But most of the time, this glib reasoning doesn't make much sense. For one thing it assumes that the positive impulse from the stimulus will more than offset the downward drag of a slowing economy -- a dubious assumption. Furthermore, the data doesn't really bear it out. If you look over the last decade, what you basically see is an ongoing stock market expansion throughout the recovery with hiccups anytime we got a growth scare.

So all that being said, it was interesting to see the market reaction to Friday's jobs report. The data was a disappointment. Just 245,000 new jobs were created in November, well below last month's 638,000 and shy of the 460,000 that economists had expected. The Labor Force Participation Rate backslid from 61.7% to 61.5%. And yet despite the confirmation of a labor market slowdown (which many have been predicting) stocks actually rose. The S&P closed up 0.88% on Friday. And what's even more interesting than that is that the yield on the 10-year actually rose right after the number. This is not what you'd expect if your underlying assumption was that weak data would cause the Fed to do more easing. (Perhaps in the form of more asset purchases at the long end, in order to drive down rates.)



So what gives? You can't read the market's mind, but one plausible explanation is that investors basically accept that it's going to be a rough winter no matter what, with a substantial slowdown in economic activity as we wait for the masses to get the vaccine. But investors don't think that any substantial slowdown over the next few months will really become a self-reinforcing recession. A slowdown, yes, but not one that spirals out of control. And then when the vaccine comes, it's assumed we'll have a brisk recovery. The other wildcard here is that stimulus negotiations started looking brighter at the end of last week, and it may be that the deceleration in the labor market, just as millions of people are staring down a loss of benefits, make it more likely Congressional leaders agree to a deal.

So you have a market that doesn't see a winter downturn becoming self-reinforcing + the possibility of a stimulus, pushing bond yields higher. In other words, the market is still basically pricing in two outcomes next year: Good (just a vaccine) and better (a vaccine + stimulus). The bad outcome (a true double dip, where activity spirals lower) is not a market concern right now. That doesn't mean it can't happen, but investors aren't concerned about it, and Friday's Non-Farm Payrolls miss wasn't bad enough to really make it a worry.

Joe Weisenthal is an editor at Bloomberg.

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