Interbank market, central banks, foreign exchange: Will Joe Biden, GOP meeting signal increased public capital spending?

The strategy takeaway …

Joe Biden positions himself as mediator as GOP presents a non-stimulative pandemic plan.

President Joe Biden is scheduled to meet with today at 5 pm EST with 10 centrist and conservative Republican senators to discuss a $619 billion pandemic relief program. Specifically, the GOP offering proposes the following:

$160 billion in direct pandemic response;

$132 billion in additional unemployment insurance;

$20 billion to fund childcare and a development block grant;

$20 billion to fund a “get back to school” initiative;

$50 billion to small businesses including another itineration of the Paycheck Protection Program;

$220 billion in direct payments to households;

$12 billion for nutritional support programs; and

$4 billion for behavioral support services.

The total GOP package is roughly one-third of the $1.9 trillion proposals favored by most Democrats. Mr Biden has been reportedly receiving pushback from the more progressive wing of his party regarding his willingness to sit down and listen to the GOP proposals. Progressive Democrats prefer that the Senate GOP negotiate directly with Senate Democrats versus conducting an end-around with the President.

The dollar likely climbs with growth in gross domestic product and positive growth in its commodities and equities markets. Infrastructure spends would also attract capital to the United States thus driving up demand for the dollar resulting in its appreciation. The GOP’s proposal does not, in my opinion, stimulate growth that can be expressed in currencies. The “stimulus” is more of a pandemic band-aid designed to keep the United States together until an economy that is more familiar comes along.

At best, traders should view the GOP’s strategy for stimulus as non-dynamic due to a lack of emphasis on non-capital driven items. Mr Biden’s American Rescue Plan does not appear to do more than be a bigger band-aid for households versus actual stimulation of economic growth.

Mr Biden’s American Rescue Plan touts a total of $1.9 trillion in funding. The Plan also focuses on extended unemployment insurance, direct pandemic payments to households, higher minimum wage, increased food aid, and expanded child tax credit, and continued foreclosure and eviction moratoriums. No emphasis on infrastructure or the other classic big ticket, shovel ready items that attracts capital expenditures.

Short of a significant lift on restrictions that limit travel and gatherings that would lead to reigniting economic activity, I don’t see much in either the GOP or Mr Biden’s plans that will bring back better.

The interbank market news scan …

President Joe Biden and Democratic congressional leaders must decide whether to break the administration’s $1.9 trillion Covid-19 relief proposal into pieces after a scaled-down Republican plan emerged. Republican Stimulus Offer Challenges Biden to Split Aid Bill (msn.com)

The group of 10 Republican senators seeking to negotiate with President Biden on a new round of COVID-19 relief unveiled details of their proposal on Monday, hours before the lawmakers are set to meet with the president at the White House. GOP senators detail $618 billion COVID relief counteroffer (msn.com)

GOP proposed sixth Covid-19 relief package. Proposed Sixth Covid Relief Package.pdf (senate.gov)

As President Joe Biden prepares to meet with Republican senators on Monday to discuss his proposed $1.9 trillion COVID-19 relief bill, progressives have urged the commander-in-chief to move ahead with his stimulus plan regardless of whether the GOP supports it. Progressives Dismiss Joe Biden’s Bipartisan Effort on COVID Relief, Demand Action Now (msn.com)

Ghana’s central bank on Monday kept its main interest rate unchanged at 14.5%, Governor Ernest Addison said in a statement. Ghana central bank holds key rate at 14.5% | Nasdaq

The Australian and New Zealand dollars were little changed on Monday ahead of a central bank meeting as cautious currency traders watched on while a wave of runaway retail investors unsettled equity markets. Australian dollar trades fractionally higher head of central bank meeting | Reuters

Cryptocurrency XRP tumbled into the red on Monday, after rising more than 50% in early trading, as a “pump and hold” scheme organized by day traders ran into trouble.https://www.consumersadvocate.org/widgets/text_list?pcuid=cf4d004eb5b1

Yet “meme” currency Dogecoin held on gains of around 34% as amateur investors zeroed in on new assets in the wake of the GameStop saga and Elon Musk boosted interest in cryptocurrencies. XRP falls sharply after soaring 50% but Dogecoin is holding on, with day traders looking for new targets and Elon Musk fanning interest (msn.com)

The head of Hong Kong Monetary Authority has rejected lawmakers’ call to dip into the HK$4.5 trillion (US$581 billion) Exchange Fund to finance the government’s rescue packages for companies and individuals hard hit by the Covid-19 pandemic, saying such a move would hurt the fund’s ability to defend the local currency. Hong Kong wants to keep its US$581 billion war chest for defending the currency instead of the economy, monetary chief says | South China Morning Post (scmp.com)

A quick thought: Quieted by a 50-50 Senate split …

“A 50-50 split in the Senate with a reduced Democratic majority in the House not only puts the GOP back into their familiar position as “obstructionist”, but gives Biden-Harris some cover to not present as progressive an agenda as the Far Left would like to see. Centrist and center-right senators like Angus King, Susan Collins, Rand Paul, and Joe Manchin will take more of the spotlight.

Mitch McConnell will still play the “parliamentarian” role, using Senate rules to delay floor debates, filibuster, or, if he is lucky, table certain items.

The last thing Kamala Harris will want, as president of the Senate, is the optics of having to do a yay or nay on any progressive legislation. She’d rather Collins, Paul, and Company head off any controversial bills before they hit the floor for a vote. She can’t afford to enter the 2024 presidential race inaccurately labeled a progressive.

Commodity, currency, and energy traders may get over their initial nervousness about the volatility a liberal Congress may introduce when they realize that the “adults” are finally in charge …