Interbank market scan: The US House today begins voting on Biden American Rescue Plan; central banks, foreign exchange, cryptocurrency …

The Takeaway

Across seven of ten major currency pairs the dollar exhibited continued weakness after two pandemic related events. First, there was the meeting between President Joe Biden and ten Republican senators. The President released a statement that signaled that he preferred the Democratic-controlled Congress pursue the reconciliation, a stream-lined process for getting approval of $1.9 trillion in spending on Mr Biden’s “American Rescue Plan.” The GOP senators wanted a package price tagged at $618 billion.

The second event will be actual voting on rules that provide instruction in the House on determining how revenue and spending targets be reconciled with appropriate changes in existing legislation. That vote begins today around 6:30 EST.

The main takeaway at this juncture is that the US government will have to borrow funds to finance Mr Biden’s plans and there is conjecture that Treasury will have to borrow more than the $1.9 trillion that Mr Biden is requesting. Central banks from emerging and commodity-driven economies are preparing to ramp up their reserves of the US dollar in order to buy up Treasurys when the debt is issued for purchase. Interest rates on the debt and yields are expected to inch up which theoretically should be accompanied by increased demand for the dollar. The Federal Reserve’s $120 billion per month of debt combined with other central purchases of US debt may work to create a supply of dollars to tamp down the dollar price.

Currency pairsExchange Rate as of 4:45 pm EST 1 February 2021The eventPost Event-Exchange Rate as of 2:00 pm EST 2 February 2021Impact
AUD/USD0.7641Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus0.7585USD strengthening
USD/CAD1.2776Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.2811CAD strengthening
USD/CNY6.4267Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus6.4551USD weakening
EUR/USD1.2135Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.2019USD strengthening
USD/INR72.8760Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus72.9415INR weakening
GBP/USD1.3699Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.3654USD strengthening
USD/JPY104.6400Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus105.0700USD strengthening
USD/MXN20.5641Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus20.1798USD weakening
USD/DKK6.1262Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus6.1874USD strengthening
USD/NOK8.5474Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus8.6173USD strengthening
Source: Federal Reserve and Reuters

The news scan

Both houses of Congress were preparing to take the first steps forward on U.S. President Joe Biden’s $1.9 trillion COVID-19 relief package, with initial votes on Tuesday launching efforts to fast-track passage. U.S. Congress readies first steps toward $1.9 trillion COVID-19 relief bill | Reuters

Several central banks have ventured into unusual territory in the opening weeks of this year, announcing currency sales in advance as they tread a delicate line between dulling the impact of a sliding dollar and dodging the ire of the US Treasury. Central banks take rare step of flagging currency sales in advance | Financial Times (ft.com) https://www.ft.com/content/0383f3a4-41a0-464a-b831-fd1a09a6b1b0

As the Treasury Department holds its largest auctions on record, global central banks could play a familiar role in helping to sop up the deluge of debt supply set to hit markets this year. Here’s why foreign central banks are set to reprise role as big buyer of U.S. government debt (msn.com)

The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing[1] for the January – March 2021 and April – June 2021 quarters[2]. TREASURY ANNOUNCES MARKETABLE BORROWING ESTIMATES | U.S. Department of the Treasury

Interbank market news scan: Biden ready to pull reconciliation trigger; central banks, cryptocurrency, foreign exchange

The strategy takeaway …

The White House yesterday released the following statement on President Joe Biden’s meeting with GOP senators:

“The President and the Vice President had a substantive and productive discussion with Republican senators this evening at the White House. The group shared a desire to get help to the American people, who are suffering through the worst health and economic crisis in a generation. 

While there were areas of agreement, the President also reiterated his view that Congress must respond boldly and urgently, and noted many areas which the Republican senators’ proposal does not address. He reiterated that while he is hopeful that the Rescue Plan can pass with bipartisan support, a reconciliation package is a path to achieve that end. The President also made clear that the American Rescue Plan was carefully designed to meet the stakes of this moment, and any changes in it cannot leave the nation short of its pressing needs. 

The President expressed his hope that the group could continue to discuss ways to strengthen the American Rescue Plan as it moves forward, and find areas of common ground  including work on small business support and nutrition programs. He reiterated, however, that he will not slow down work on this urgent crisis response, and will not settle for a package that fails to meet the moment.”

The key word here is reconciliation. In this statement, Mr Biden is signaling that the GOP’s offer does not come close enough to his vision on spending. Reports have the Republicans promoting a pandemic relief package of approximately $618 billion while Mr Biden wants a package of $1.9 trillion. Given Democratic Party control of both chambers of Congress, Mr Biden may believe that fast tracking his measure through Congress is his best option. He can argue that he kept his promise to pursue a bi-partisan approach with the Republicans while keeping his campaign pledge to push a $1.9 trillion plan.

Reconciliation allows Democratic House leadership to issue instructions to its committees to make changes in existing law to support the proposed program costs. The House Budget Committee bundles together the committees’ recommended changes in spending and revenues and submits the bundled recommendations to the House floor for vote. When the reconciliation bill is sent to the Senate, the bill goes through an expedited process. Filibuster is not allowed and a simple majority would be all that is needed to pass in the Senate.

Traders should position themselves for a stronger dollar accompanied by higher yields and an uptick in inflation due to additional spending by consumers. The duration of dollar strengthening, in my opinion, will be determined by the type of spending generated by the bill. As I concluded yesterday, Mr Biden’s America Rescue Plan does not appear to provide funding for infrastructure projects and seems more of a band-aid for households. With the bulk of monies expected to go to households, I expect spending on consumer items, rent, and mortgages.

Currency pairsExchange Rate as of 4:45 pm EST 1 February 2021The eventPost Event-Exchange Rate as of 1:49 am EST 2 February 2021
AUD/USD0.7641Joe Biden meets with GOP senators0.7626
USD/CAD1.2776Joe Biden meets with GOP senators1.2824
USD/CNY6.4267Joe Biden meets with GOP senators6.4605
EUR/USD1.2135Joe Biden meets with GOP senators1.2066
USD/INR72.8760Joe Biden meets with GOP senators72.9740
GBP/USD1.3699Joe Biden meets with GOP senators1.3676
USD/JPY104.6400Joe Biden meets with GOP senators105.0200
USD/MXN20.5641Joe Biden meets with GOP senators20.2827
USD/DKK6.1262Joe Biden meets with GOP senators6.1539
USD/NOK8.5474Joe Biden meets with GOP senators8.5639
Sources: Federal Reserve, Reuters

In the news …

Australia’s central bank held rates at near-zero in a widely expected decision on Tuesday and said it would expand its bond buying programme by A$100 billion ($76.4 billion)from mid-April to help support jobs and boost inflation. Australia central bank expands QE by $76 bln, commits to prolonged easy rates (msn.com)

China’s central bank on Tuesday conducted 80 billion yuan ($12.36 billion) of reverse repos to maintain reasonably ample liquidity in the banking system. China’s central bank conducts 80b yuan of reverse repos – Chinadaily.com.cn

The news of NVIDIA Corporation (NASDAQ: NVDA) potentially restarting production of graphics processing units (GPUs) production is very good news for all those hoping for bitcoin mining GPUs. Cryptocurrency Miners Are Eagerly Awaiting News From Nvidia – MarketWatch

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 … 

Are currency traders willing to pay more for the US dollar in face of US election? ….

Capital abhors a vacuum and even with the U.S. general election three days away, capital will try to cut through the campaign noise and seek out a return. From a political and legal event perspective, traders should assess the strength of legal challenges to voting, especially challenges raised by the Republican Party.

Republicans and Democrats have been building their legal teams for over a year and both will be on the lookout for voting irregularities including evidence of voter suppression or voter fraud. Republicans are expected to challenge authenticity of mail-in ballots and the deadlines for when these ballots are expected to be received. Traders should be particularly mindful of the intensity of Republican challenges given that incumbent president Donald J. Trump is running behind Democratic nominee Joseph R. Biden in national polls.

Real Clear Politics has Mr Biden polling at 51.3% versus Mr Trumps 43.5% during the period 21 October to 30 October 2020. PredictIt is pricing a .65 probability of a Democratic takeover of the White House versus a probability of .40 that the Republican Party maintains control of the Oval Office.

But the foreign exchange markets appear to see the value of the US dollar priced in various currencies increasing as we get closer to the election.

Country/Currency24 October25 October26 October27 October28 October29 October30 October31 October
Mexico (MXN)20.921020.840820.847620.966720.927121.169421.310121.2962
Canada (CAD)1.313611.311911.312201.318291.317761.325551.332211.33172
Japan (Yen)104.72104.66104.67104.87104.61104.30104.44104.49
China (Yuan)6.677336.676806.676806.699166.705156.716726.711576.68746
Euro.84496.84274.84288.84578.84622.85056.85398.85694
Eastern Caribbean Dollar2.702.702.702.702.702.702.702.70
Brazil (BRL)5.601805.618405.618185.621155.644745.722425.758215.76506
Price of US Dollar in selected exchange rates 24 October to 31 October 2020

With the exception of Japan and the Eastern Caribbean, the prices in foreign currency offered for a US Dollar have been inching up over the last week. Traders in the above nations reflect a number of major US trading partners and the increase in the amount traders in these countries are willing to offer a seller of the US dollar tells me that at a minimum, they have positive expectation in the potential for growth in the US and that public policies offered by Mr Biden might not deter expected growth or value of the dollar.

Again, traders should be on the lookout for any legal, legislative, or regulatory actions that thwart the ability of Mr Biden to garner enough votes to win the Electoral College.

Additional source: OANDA.com

Democrats, Republicans, Blacks, and the River Jordan …

After a 40-year trek in the desert, Moses took his people to the river Jordan. They crossed. He didn’t. America has been on a 40-year readjustment ever since real wages, particularly for people in the labor class, started to flatten. By 2008, a major readjustment in the economy spawned the first great threat to a Baby Boomer class entering retirement.

This widening gap between labor and capital compounded by a meltdown in the financial markets and the “I’ve had it up to here” exasperation by Rick Santelli on the floor of the Chicago Mercantile Exchange gave birth to a Tea Party that saw America falling further and further under the sway of the banks.

The promises of “hope and change” extended to the voting public by a young president from Illinois did not translate into any policies that would close this gap. On the contrary, the banks were provided with three legislated mechanisms (TARP, HOPE, and Dodd-Frank) that would strengthen their balance sheets versus sending alleged perpetrators of the alleged economic fraud to jail.

Forty years after the beginning of The Gradual Descent, Baby Boomers now see either no yields on their accumulated cash or worse, see a Federal Reserve willing to go the European route by asking investors to “pay”, via negative yields, the banks for holding their cash. As if to rub the salt further into the wounds, voters were now being asked by the wife of the leading architect of a corporatized Democratic Party, a former member of an Administration that turned a blind eye to the widening gap between capital and labor, to continue the work of the last Administration.

While the 2016 popular vote favored the Democratic candidate by a delusional and deluded 3 million votes, the Tea Party reached out from the Flyover States and gave the electoral college decision to a reality TV star, an admitted political outsider (and genital grabber) who the Republican Establishment could not control and the Democratic Party loathed.

While the 2016 election’s presidential winner promised to “Make America Great Again”, the four years since that victory has produced a further diversion by the financial markets from the real economy, a diversion that is setting the table for what I believe will be political calamity for the American polity in 2024 and 2028.

Whether the 2020 Democratic candidate wins in 47 days will make no difference to what is to come in 2024 and 2028. Fringe elements of the Democratic Party in concert with non-party societal fringe elements who still want a government (they are mistakenly referred to as anarchists) will be given license to break up a Democratic Party whose very Establishment is too weak to keep the far left in check. The Big Tent will implode and the implosion will give western states pause to consider seriously the possibility of seceding from a political economy too undisciplined to maintain a union.

America’s trek to its river Jordan is coming to end. Some people, particularly blacks, will not want to cross the river, preferring to hold on to a myth of America that was never intended to materialize. Blacks are too rule-based and a rule-based people hanging on to myths won’t survive a new frontier as the collective they now know. Only capital will make the crossing.

Election 2016 was the doorman at the restaurant. Election 2020 is the server. Elections 2024 and 2028 will provide the feast for those who recognized early the emergence of a new American order. “You should move to a small town, somewhere the rule of law still exists. You will not survive here. You are not a wolf, and this is a land of wolves now.” — ‘Alejandro’

Taking over the Democratic Party by leaving the Democratic Party…

No matter who wins the presidential election this fall, by the end of summer 2021, all those corporations promising investment in the black community will have reneged on said promises. The existing political-economic model was never designed to generate said promises. Even if implemented, the matrix of existing political-economic rules cannot sustain these promises.
 
Unfortunately for the Afro-Diaspora, none of its representatives in Congress have proven themselves bold enough or adept enough to create a coalition necessary for passing radical legislation that authorizes the “Fourth Branch” to take the necessary administrative steps to change the model. The steps voters will have to take is to clean these leaders out along with their younger progeny and heirs who hope to take their place. A one-swoop, multi-generational housecleaning is needed.
 
In other words, any under-40 aspiring politician who parrots the hat-in-hand, “massa hook me up” mantra of the current old heads in power needs to be discouraged from even running for county dog catcher much less a seat in government.
 
The Marines have a saying. We don’t care if you are a lawyer, doctor, engineer, mechanic, or administrative assistant. You are first and foremost a fighter. The Diaspora needs a new narrative based on critical thinking and less emotion. It is that narrative that will energize and guide the street fighters the Diaspora needs.
Politics is a blood sport. This is something the Republicans, and in particular members of the Hard Right, have come to realize. This is why, although their views are allegedly held by a minority but significant amount of the population, they have been able to hold significant sway over Congress, the White House, and state elections. They don’t have a big tent. They have a focused headquarters company of political operations and strategists.
 
Unlike Democrats who have conflated diversity in the rank and file to mean having multiple voices espousing multiple narratives, the GOP speaks with relatively one voice (although some will say the current one voice is the wrong voice).
 
Democrats have too many “Karens, Chads, and Biffs trying to lead and too many Keishas, Leroys, and Jeromes trying to impersonate them. The “Big Tent” needs to be cleaned out.
 
In all this confusion, head faking, and delusion, the promises of so called “equality” will fade away, and reality will raise its annoying head.
 
Chaos, however, should not be looked upon with despair. Rather, this is an opportunity for the Diaspora to create what I term ‘controlled anarchy.’ Rather than stepping in and trying to save the Chad, Becky, Biff, Karen-led Democrats, the Diaspora should clean its own house and then implement a plan of arms length manipulation of the Democratic Party with the end game of getting the Party back to its original mission: to serve the interest of the common man.
 
As the economy changes to a model that is further opposite of the needs of the average Afro-Diaspora man and woman trying to make their way, it is time for Afro people to stop trying to equate to or be white, and create a political model that in the end, ironically, serves everyone.