09 Dec 2020 3 min read

US stimulus negotiations: time to deliver?

By Tim Drayson , Emiel van den Heiligenberg

Completion of a fiscal deal in the US may be needed to keep equity markets in a festive mood.



Recent news on COVID-19 vaccines has generally been positive, fostering the very broad positive sentiment towards risk assets, but we shouldn’t forget that the immediate economic outlook remains challenging.

Europe is already in a renewed contraction, following a significant increase in lockdown measures to bring the virus under control. US economic data have held up well so far because restrictions had been relatively limited, but stricter policies are starting to be deployed from New York to California amid still rising COVID-19 cases following the Thanksgiving holiday.

These deteriorating virus dynamics are coinciding with a crucial period in the negotiations over fiscal stimulus in the US. Treasury secretary Steven Mnuchin has stepped in with a fresh proposal which now has the support of Senate Republican leader Mitch McConnell. This brings both sides into alignment on the size of the package at around $900 billion, with only the details still to be finalised.

Amid the ongoing toll from the virus, both sides are coming under greater pressure to pass a bill. The fiscal headwinds to the US economy are set to intensify as more elements of the Coronavirus Aid, Relief, and Economic Security (CARES) Act are scheduled to expire in the coming weeks (see detail in the slide below). The disappointing November payrolls report added to the anxiety.

Despite this urgency, it is not certain a compromise can be reached in time for Christmas. Failure to reach an agreement risks an outright contraction in activity over the festive period, a negative GDP print for the first quarter of 2021, and so a double-dip recession.

Our outlook for 2021 is still positive, and markets might well look through any economic weakness as temporary, but given the gap between exuberant sentiment and the potential for short-term disappointment, we are tactically neutral at the moment. We will not chase the rally at this point, preferring to take our risk in relative-value trades.

Tim Drayson

Head of Economics

Tim keeps a close watch on global economic developments, with a particular focus on the US. He believes nothing good ever happens after midnight, which is why he is rarely spotted out late. Tim joined in 2008 from the number-one ranked economics team at ABN AMRO, with prior experience from HM Treasury, and graduated with a MSc from the University of Nottingham. When not crunching economic data, he can be found studying the weather forecast, analysing his cycling statistics or looking anxious on three-foot putts.

Tim Drayson

Emiel van den Heiligenberg

Head of Asset Allocation

Emiel is responsible for the overall strategic direction of the team’s investment and business strategy. He claims to have been a promising lightweight rower at university until French fries got the better of him. Reflecting his love for rowing in a team, he firmly believes that excellence can only be achieved by a great team made up of motivated individuals that are also eager to work together. To this end he is the self-proclaimed inventor of the verb 'teaming' to acknowledge that shaping a top team and culture of excellence is an ongoing process. Outside of work-family obligations, Emiel’s spare time is filled by a passion for shark diving and skiing. Prior to dedicating his career to portfolio management in 1996, Emiel worked as a policy adviser in the Dutch Ministry of Finance and he graduated from Tilburg University in the Netherlands ages ago. When not glued to his Bloomberg screens, this Dutch man is hooked on computer games, peanut butter and his favourite dark beer made by Belgian monks.

Emiel van den Heiligenberg