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Politics will be front and center as a catalyst in the first week of the new year – CNBC

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Politics will be front and center as a catalyst in the first week of the new year – CNBC

Traders work on the floor of the New York Stock Exchange.
NYSE

Stocks exit 2020 with strong gains and are riding a tailwind, but already in the dawn of the new year, the market could face its first big challenge.

The final outcome of the 2020 election plays out Tuesday, when voters in Georgia will pick their senators and decide which party controls the U.S. Senate.

With President-elect Joe Biden heading to the White House and a Democratic-controlled House of Representatives, Wall Street has been comfortable with the view that Biden and the Democrats could not succeed with tax hikes and more progressive policy changes while Republicans hold the Senate.

The runoff election for the two Senate seats Tuesday is widely expected to result in one or both of the incumbent Republican senators retaining their seats. But Democrats are close in the polls and should they win, each party would have 50 seats with Vice President-elect Kamala Harris the tie breaker.

“Georgia is the most important thing to the Biden presidency for the next two years,” said Ed Mills, Washington policy analyst at Raymond James. “It’s going to determine what is the legislative agenda and who can get confirmed by the United States Senate.”

Sen. David Perdue is being challenged by Democrat Jon Ossoff, while GOP Sen. Kelly Loeffler is running against Democrat Raphael Warnock. None of the candidates had more than 50% of the vote in the Nov. 3 election, so Georgia law requires a runoff election between the two leading candidates for each seat.

“It’s a binary event,” said Mills, adding it’s of growing interest to markets. “The general sense for the market is that Republicans are well positioned to maintain their majority in the Senate. But I think the 2020 election as well as the 2016 election and to some extent, the 2018 election has humbled us … The Senate outcomes, in particular, seem to be less predictable than almost any other elections.”

Mills said the results may take several days to determine, adding to the uncertainty the event could hold for markets. According to an RBC investor survey, 88% expect Republicans to maintain control, and most say that is a positive for the stock market.

“The market tends to shoot first and ask questions later. There will certainly be a reaction if Democrats win both those seats,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Strategists say there could be a relief rally if Republican incumbents see a clear victory.

“That totally dominates [trading] because it’s about do we have status quo or do we have Democrats controlling all parts of Washington and what that means for spending and taxes,” Boockvar said. “I think you could see the worries about taxes overwhelming any thoughts on the benefits of more spending” by Democrats.

By the numbers

A year of extreme volatility ended with a big win for stocks, as the pandemic steered the course for markets. The S&P 500 was up 16.3% for the year, ending at 3,756. That gain comes after a 34% decline early in the year, followed by a powerful more-than 65% rebound. Technology was the big winner for the year, and the Nasdaq was up 43.6% at 12,888.

Besides the runoff vote, the market will be watching a stream of data in the coming week, including the important December jobs report Friday. That could show fewer than 100,000 jobs were added as the spreading virus impacted hiring and layoffs. There were 245,000 jobs created in November.

There is also ISM manufacturing data Tuesday, and a number of Fed speakers, including Vice Chairman Richard Clarida on Friday.

The virus itself could also be a factor for stocks.

Conventional wisdom for the coming year has been that vaccines will be widely distributed, and by the second half things will start to get back to normal and the economy will pick up. But the initial distribution has been slow, and far short of the 20 million targeted for December by President Donald Trump’s task force.

In that recent RBC survey, three quarters of investors were optimistic about vaccine distribution with 80% expecting a majority to be vaccinated by the end of 2021. “We suspect that the positive outlook for the stock market and the economy would deteriorate if expectations for a smooth vaccine rollout are not met,” RBC strategists wrote.

They also noted that nearly 60% of the investors surveyed believe high stock market valuations are problematic.

“This suggests to us that any threat to the economic and earnings recovery story could spark profit-taking. On this point, it is worth noting that the vaccine was the No. 1 issue keeping investors up at night, closely followed by monetary policy and excessive optimism on the recovery,” the strategists noted.

Chris Rupkey, chief financial economist at MUFG Union Bank, said investors will also be watching the formal acceptance of the Electoral College vote Wednesday. Strategists expect the vote count to confirm Biden’s presidency.

However, Missouri Sen. Josh Hawley says he will challenge the certification, and several House Republicans have already vowed to contest the election at that time. If one House member and a senator jointly object to a state’s slate of electors, the two houses of Congress must separately debate and vote on the objection.

Strategists see little chance of any impact on the election outcome, but there could be fireworks. Trump has been claiming since the election that there was fraud but multiple courts failed to find any truth to the claims.

Rupkey said investors are not taking into account enough potential for political risk from the deep animosity between the two political parties.

“I think the additional stimulus and hopes for additional stimulus, and infrastructure spending in 2021, I don’t know that that is such a slam dunk, because of the issue of political instability,” he said.

Week ahead calendar

Monday

9:45 a.m. Manufacturing PMI

10:00 a.m. Construction spending

10:00 a.m. Chicago Fed President Charles Evans

12:15 p.m. Cleveland Fed President Loretta Mester

6:00 p.m. Cleveland Fed’s Mester

Tuesday

Vehicle sales

10:00 a.m. ISM manufacturing

3:45 p.m. New York Fed President John Williams

3:45 p.m. Chicago Fed’s Evans

Wednesday

8:15 a.m. ADP payroll data

9:45 a.m. Services PMI

10:00 a.m. Factory orders

2:00 p.m. Fed minutes

Thursday

8:30 a.m. Initial jobless claims

8:30 a.m. International trade

9:00 a.m. Philadelphia Fed President Patrick Harker

10:00 a.m. ISM nonmanufacturing

11:00 a.m. St. Louis Fed President James Bullard

1:00 p.m. Chicago Fed’s Evans

3:00 p.m. San Francisco Fed President Mary Daly

Friday

8:30 a.m. Employment report

10:00 a.m. Wholesale trade

11:00 a.m. Fed Vice Chairman Richard Clarida

3:00 p.m. Consumer credit

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Green Party in turmoil, leader resists calls to step down

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Green Party in turmoil, leader resists calls to step down

Canada‘s Green Party was increasingly mired in an internal dispute over its position on Israel on Tuesday, and a news report said the bloc would hold a vote next month on whether to oust its leader, Annamie Paul, who was elected just eight months ago.

The Canadian Broadcasting Corp (CBC) reported that the Greens had triggered a process that could remove Paul, the first black person to head a mainstream Canadian party, beginning with a vote next month.

A Green Party spokesperson declined to comment on the report, but said the party’s “federal council” would meet later on Tuesday. Earlier in the day, Paul, 48, rejected calls from the Quebec wing of the party for her to resign after a member of parliament left the Greens due to the Israel controversy.

“I believe that I have been given a strong mandate. I believe that I have been given the instructions to work on behalf of Canadians for a green recovery,” Paul said at a news conference in Ottawa.

Paul herself is not a member of parliament. The Greens – who champion the environment and the fight against climate change – had only three legislators in the 338-seat House of Commons and one, Jenica Atwin, abandoned the party last week to join the governing Liberals.

Atwin has said that her exit was in large part due to a dispute over the party’s stance on Israel. Atwin on Twitter has criticized Israel’s treatment of Palestinians, while a senior adviser to Paul, Noah Zatzman, has posted on Facebook that some unspecified Green members of parliament are anti-Semitic.

The party’s executive committee voted last week not to renew Zatzman’s contract, local media reported. Paul converted to Judaism some two decades ago after she married a Jewish man.

While the Greens are the smallest faction in parliament, they perform well in British Colombia and hold two seats there. The current turmoil may favor their rivals ahead of a national election that senior Liberals say could be just a few months away.

The Greens would win about 6.7% of the vote nationally if a vote were held now, according to an average of recent polls aggregated by the CBC.

 

(Reporting by Steve Scherer and Julie Gordon; editing by Jonathan Oatis)

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Hope, anger and defiance greet birth of Israel’s new government

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Hope, anger and defiance greet birth of Israel’s new government

Following are reactions to the new government in Israel, led by Prime Minister Naftali Bennett.

BENJAMIN NETANYAHU, FORMER ISRAELI PRIME MINISTER

“We’ll be back, soon.”

JOE BIDEN, PRESIDENT OF THE UNITED STATES

“On behalf of the American people, I congratulate Prime Minister Naftali Bennett, Alternate Prime Minister and Foreign Minister Yair Lapid, and all the members of the new Israeli cabinet. I look forward to working with Prime Minister Bennett to strengthen all aspects of the close and enduring relationship between our two nations.”

NABIL ABU RUDEINEH, SPOKESMAN FOR PALESTINIAN PRESIDENT MAHMOUD ABBAS

“This is an internal Israeli affair. Our position has always been clear, what we want is a Palestinian state on the 1967 borders with Jerusalem as its capital.”

BORIS JOHNSON, BRITISH PRIME MINISTER VIA TWITTER

“On behalf of the UK, I offer my congratulations to

@naftalibennett and @yairlapid on forming a new government in Israel. As we emerge from COVID-19, this is an exciting time for the UK and Israel to continue working together to advance peace and prosperity for all.”

TOR WENNESLAND, U.N. MIDDLE EAST PEACE ENVOY VIA TWITTER

“I look forward to working with the Government to advance the ultimate goal of a lasting peace between Israelis and Palestinians.”

CHARLES MICHEL, EUROPEAN COUNCIL PRESIDENT VIA TWITTER

“Congratulations to Prime Minister @naftalibennett and to Alternate PM & MFA @yairlapid for the swearing in of the new Israeli government. Looking forward to strengthen the partnership for common prosperity and towards lasting regional peace & stability.”

FAWZI BARHOUM, HAMAS SPOKESMAN

“Regardless of the shape of the government in Israel, it will not alter the way we look at the Zionist entity. It is an occupation and a colonial entity, which we should resist by force to get our rights back.”

BENNY GANTZ, ISRAELI DEFENCE MINISTER

“With all due respect, Israel is not a widower. Israel’s security was never dependent on one man. And it will never be dependent on one man.”

CHUCK SCHUMER, U.S. SENATE MAJORITY LEADER

“So, there’s a new Administration in Israel. And we are hopeful that we can now begin serious negotiations for a two-state solution. I am urging the Biden Administration to do all it can to bring the parties together and help achieve a two-state solution where each side can live side by side in peace.”

JUSTIN TRUDEAU, PRIME MINISTER OF CANADA

“Congratulations on the formation of a new Israeli government, Prime Minister @NaftaliBennett and Alternate Prime Minister @YairLapid. Together, let’s explore ways to further strengthen the relationship between Canada and Israel.”

MANSOUR ABBAS, ARAB MEMBER OF NEW ISRAELI GOVERNMENT

“We are aware that this step has a lot of risks and hardships that we cannot deny, but the opportunity for us is also big: to change the equation and the balance of power in the Knesset and in the upcoming government.”

DAPHNA KILION, ISRAELI IN JERUSALEM

“I think it’s very exciting for Israel to have a new beginning and I’m hopeful that the new government will take them in the right direction.”

EREZ GOLDMAN, ISRAELI IN JERUSALEM

“It’s a sad day today, it’s not a legitimate government. It’s pretty sad that almost 86 (out of 120 seats) in the parliament, the Knesset, belong to the right-wing and they sold their soul and ideology and their beliefs to the extreme left-wing just for one purpose – hatred of Netanyahu and to become a prime minister.”

SEBASTIAN KURZ, CHANCELLOR OF AUSTRIA, VIA TWITTER

“Congratulations to PM @naftalibennett and alternate PM @yairlapid for forming a government. I look forward to working with you. Austria is committed to Israel as a Jewish and democratic state and will continue to stand by Israel’s side.”

(Reporting by Stephen Farrell; Editing by Andrew Heavens, Daniel Wallis and Lisa Shumaker)

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Boris Johnson hails Biden as ‘a big breath of fresh air’

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Boris Johnson hails Biden as ‘a big breath of fresh air’

British Prime Minister Boris Johnson hailed U.S. President Joe Biden on Thursday as “a big breath of fresh air”, and praised his determination to work with allies on important global issues ranging from climate change and COVID-19 to security.

Johnson did not draw an explicit parallel between Biden and his predecessor Donald Trump after talks with the Democratic president in the English seaside resort of Carbis Bay on the eve of a summit of the Group of Seven (G7) advanced economies.

But his comments made clear Biden had taken a much more multilateral approach to talks than Trump, whose vision of the world at times shocked, angered and bewildered many of Washington’s European allies.

“It’s a big breath of fresh air,” Johnson said of a meeting that lasted about an hour and 20 minutes.

“It was a long, long, good session. We covered a huge range of subjects,” he said. “It’s new, it’s interesting and we’re working very hard together.”

The two leaders appeared relaxed as they admired the view across the Atlantic alongside their wives, with Jill Biden wearing a jacket embroidered with the word “LOVE”.

“It’s a beautiful beginning,” she said.

Though Johnson said the talks were “great”, Biden brought grave concerns about a row between Britain and the European Union which he said could threaten peace in the British region of Northern Ireland, which following Britain’s departure from the EU is on the United Kingdom’s frontier with the bloc as it borders EU member state Ireland.

The two leaders did not have a joint briefing after the meeting: Johnson spoke to British media while Biden made a speech about a U.S. plan to donate half a billion vaccines to poorer countries.

NORTHERN IRELAND

Biden, who is proud of his Irish heritage, was keen to prevent difficult negotiations between Brussels and London undermining a 1998 U.S.-brokered peace deal known as the Good Friday Agreement that ended three decades of bloodshed in Northern Ireland.

White House national security adviser Jake Sullivan told reporters aboard Air Force One on the way to Britain that Biden had a “rock-solid belief” in the peace deal and that any steps that imperilled the accord would not be welcomed.

Yael Lempert, the top U.S. diplomat in Britain, issued London with a demarche – a formal diplomatic reprimand – for “inflaming” tensions, the Times newspaper reported.

Johnson sought to play down the differences with Washington.

“There’s complete harmony on the need to keep going, find solutions, and make sure we uphold the Belfast Good Friday Agreement,” said Johnson, one of the leaders of the 2016 campaign to leave the EU.

Asked if Biden had made his alarm about the situation in Northern Ireland very clear, he said: “No he didn’t.

“America, the United States, Washington, the UK, plus the European Union have one thing we absolutely all want to do,” Johnson said. “And that is to uphold the Belfast Good Friday Agreement, and make sure we keep the balance of the peace process going. That is absolutely common ground.”

The 1998 peace deal largely brought an end to the “Troubles” – three decades of conflict between Irish Catholic nationalist militants and pro-British Protestant “loyalist” paramilitaries in which 3,600 people were killed.

Britain’s exit from the EU has strained the peace in Northern Ireland. The 27-nation bloc wants to protect its markets but a border in the Irish Sea cuts off the British province from the rest of the United Kingdom.

Although Britain formally left the EU in 2020, the two sides are still trading threats over the Brexit deal after London unilaterally delayed the implementation of the Northern Irish clauses of the deal.

Johnson’s Downing Street office said he and Biden agreed that both Britain and the EU “had a responsibility to work together and to find pragmatic solutions to allow unencumbered trade” between Northern Ireland, Britain and Ireland.”

(Reporting by Steve Holland, Andrea Shalal, Padraic Halpin, John Chalmers; Writing by Guy Faulconbridge; Editing by Giles Elgood, Emelia Sithole-Matarise, Mark Potter and Timothy Heritage)

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