After the traditionally infuriating song and dance, early on Wednesday morning Congress agreed to a $2 trillion fiscal stimulus package (+4$ trillion in Fed buying power) that is so full of pork that there is no way it would not have passed. However, agreement on the bill was - as surprising as it sounds - the easy part, and now the discussion shifts to just how this biggest ever fiscal stimulus in US history will be implemented, and alongside that it also shifts from "when will stocks bottom?’ to "has the floor finally been established?"
As BMO's Ian Lyngen writes, the price action of the last three trading sessions led to this change in discourse, as did several key policy developments.
- First, the Fed has continued its aggressive campaign to insulate the US economy from the worse of the outbreak.
- Second, a dizzying array of emergency measures have been deployed to combat Covid-19 itself.
- Third, Congress finally "agreed" (as if it would ever turn down) on a $2 trillion package stimulus package (full vote later today) which includes $500bn to be used to back loans/assistance for firms and $350 bn for small businesses – as well as direct payments to households of $1,200 per individual and $500 per child. Included in the bill will also be enhancements to the unemployment benefit as well as support for the domestic airline industry.
So now, we wait?
Well, not exactly. AS the BMO rates analyst writes, assuming Washington is able to translate the agreement into law in an expeditious manner, the next hurdle will be as great (if not greater) than the first and presents a significant degree of execution...