| Bipartisan stimulus plan is coming, vaccine delivery is starting, and Brexit talks continue past deadline. This week After President Donald Trump signed the stopgap spending bill on Friday, Congress has one week to agree on a full-year $1.4 trillion spending bill combined with Covid-19 relief. A bipartisan group of lawmakers plans to unveil a $908 billion stimulus plan later today. They will also present a smaller $748 billion package that does not include the state and local aid provisions and liability protections for employers which have proven the biggest sticking points in negotiations so far. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin plan to speak again later today, while Senate Majority Leader Mitch McConnell has suggested that Congress move forward with the smaller bill. Roll out The first shipments of Pfizer Inc.-BioNTech SE vaccines for the U.S. are scheduled to arrive this morning, with doses in all 50 U.S. states by Wednesday, according to Gustave Perna, the army general who serves as chief operating officer for Operation Warp Speed. He expects 40 million doses to be available by the end of the month if Moderna Inc.'s vaccine gets emergency-use authorization later this week. While the rapid speed of the rollout is great news for 2021, restrictions remain in place for now, with London looking set to return to the tightest level in the coming days, and case numbers remaining high across the U.S. Extra mileTo the surprise of almost nobody, Sunday's Brexit talks deadline passed without a deal, and without the end of talks. U.K. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen said they would "go the extra mile" to get agreement, raising hopes a deal can be done. While the British pound climbed more than 1.5% this morning, continued uncertainty about the outcome of the talks the relative cost to insure against a decline versus the euro over the next three weeks remains near the highest since 2016. Markets fallThe continued hope for some kind of stimulus package from Washington and pictures of U.S. vaccines on delivery trucks is helping lifting the mood of investors. Overnight, the MSCI Asia Pacific Index added 0.2% while Japan's Topix index closed 0.6% higher. In Europe, the Stoxx 600 Index had gained 0.9% by 5:50 a.m. Eastern Time with bank stocks the strongest performers. S&P 500 futures pointed to plenty of green at the open and the 10-year Treasury yield was at 0.916%. Oil rose again in the wake of tanker explosion in the Middle East and gold fell. Election over?Today is the day that the electoral college meets to officially elect Joe Biden. Some Republican lawmakers have said this should be the end of President Trump's attempts to overturn the result of the election, with Senator Lamar Alexander of Tennessee saying yesterday he hopes the president would "put the country first" and congratulate Biden. Congress will officially count the Electoral College votes and declare the winner on Jan. 6. What we've been readingThis is what's caught our eye over the weekend. And finally, here's what Joe's interested in this morningDespite the faster-than-expected economic recovery, and the extraordinary rebound in risky assets like stocks, the yield on U.S. 10-year Treasuries has remained depressed. This is a direct result of a Federal Reserve strategy shift whereby officials signaled that going forward, they will be much slower to raise rates than they have in the past, with less of an inclination to pre-empt inflation. This has had important implications for the market.
On the latest episode of our podcast, Tracy Alloway and I talked with Naufal Sanaullah, the chief macro Strategist at EIA Alpha Partners, and Jon Turek, the author of the Cheap Convexity Blog, about the macro outlook for 2021. One of the key ideas that they talked about (and have been talking about for the last several months) is the pro-cyclicality of the existing Fed framework. To put it simply: By implicitly promising to keep rates at very depressed levels, even amid an economic recovery, the effective policy gets easier and looser, the more the economy recovers.
Here's a chart showing 10-year breakevens (teal), the yield on the U.S. 10-year Treasury (white) and real interest rates (yellow). What you can see is that even as breakeven inflation rates have trended higher, real interest rates have trended lower, since the nominal has been so slow to rise.  In other words policy is effectively looser today (real rates at -0.97%) than it was six months ago (when real rates at -0.53%), despite substantial economic and market gains since then. So as you think about this relentless rally in the market that powers ahead despite all kinds of ostensible headwinds, it's worth considering this dynamic, whereby the better things get, the easier effective Fed policy is. For more discussion of this, check out the podcast here or on iTunes. Joe Weisenthal is an editor at Bloomberg. Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. | 
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