Senate Rejects Obamacare Credit Renewal, Teeing Up Premium Spike

Political

Summary:

The issue has divided Republicans, pitting moderates and lawmakers from states and districts with high ACA enrollment against GOP leadership and the rest of the party.

The Senate rejected a pair of partisan measures addressing the impending expiration of Obamacare subsidies, setting up a Jan. 1 spike in health insurance premiums for more than 20 million Americans.

With only a few days left before lawmakers leave for their Christmas break and few signs of life in stalled bipartisan negotiations, the failure Thursday of the dueling partisan plans all but guarantees the expiration of enhanced Affordable Care Act tax credits initiated during the pandemic era.

Premium costs on average will more than double for people enrolled in Obamacare plans, forcing many of them to make hard choices on their health coverage and household finances. The outcome will have wide-ranging consequences for insurance companies, a health-care sector that accounts for one-sixth of the US economy and potentially next year’s midterm elections.

Nearly 4 million people are expected to lose insurance over the next decade as a result, according to the Congressional Budget Office. Fewer healthy people signing up for health plans could also harm health insurers’ bottom lines.

If fewer people buy health-care policies because of the higher costs, insurers will take in less revenue. And as healthy people choose to risk going without insurance coverage while sicker people stick with insurance plans, insurance becomes more expensive. Insurers including Centene Corp., Molina Healthcare Inc. and Oscar Health Inc. stand to lose the most.

UnitedHealth Group Inc., Elevance Health Inc., and Cigna Group also sell exchange plans that would be hit if subsidies lapse. Hospitals also stand to come under more financial pressure as patients arrive without insurance coverage and aren’t able to pay for their care.

The Democrats’ plan for a three-year extension of the Obamacare subsidies failed in a 51 to 48 vote, short of a 60-vote threshold needed to overcome procedural obstacles. Alaska’s two Republican senators, Lisa Murkowski and Dan Sullivan, joined Susan Collins of Maine and Josh Hawley of Missouri to cross party lines and vote with Democrats on the bill.

A Republican plan to let the Obamacare subsidies lapse and partially replace them with federally funded tax-advantaged health savings accounts also failed on a 51 to 48 vote.

The votes underlined the political challenge facing Republicans, who largely oppose the premium tax credits despite their popularity with voters. Three-quarters of Americans said they favored continuing the subsidies in a poll taken Oct. 27 to Nov. 2 by KFF, a nonpartisan health policy research institute.

Senate Health, Education, Labor and Pensions Chairman Bill Cassidy of Louisiana, one of the authors of the Republican bill, shot down Democrats’ efforts to extend the subsidies, even for only a year, equating it to a giveaway to insurance companies. Senate Democratic leader Chuck Schumer, meanwhile, called Republicans’ bill a “ridiculous proposal.” Senate Rejects Obamacare Credit Renewal, Teeing Up Premium Spike_1

Senate Rejects Obamacare Credit Renewal, Teeing Up Premium Spike_1

Democrats have seized on the expiring tax credits as a way to paint Republicans as out-of-touch with the high costs voters face, part of a midterm election strategy laser-focused on affordability. A handful of Democrats won the guarantee of a Senate vote on renewing the subsidies in exchange for their support to end the government shutdown last month.

The issue has divided Republicans, pitting moderates and lawmakers from states and districts with high ACA enrollment against GOP leadership and the rest of the party.

Reliance on Obamacare is especially high in GOP-controlled states, which were less likely to expand Medicaid under former President Barack Obama’s sweeping health care law. That has ratcheted up pressure on Republicans to present an alternative to Democrats’ message on health care before they face voters next November, though they’ve struggled to unite around a vision.

Republicans in the lead-up to Thursday released at least a half dozen competing health care proposals, including several that modified and extended the tax credits, before party leaders decided to move forward with the proposal for health savings accounts.

In the House, Speaker Mike Johnson is pressing forward with a series of health care-related proposals that are likely to avoid addressing the expiring tax credits. But he faces a revolt from rank-and-file GOP moderates who are seeking to force a House vote on renewing the subsidies.

Source: Bloomberg

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Manuel

Commodity

Copper climbed to a fresh record high and most other industrial metals rose, after the Federal Reserve delivered a widely expected interest-rate cut and upgraded its growth forecast for the US economy.

Copper advanced as much as 3% to $11,906 a ton in London, surpassing a peak struck on Monday. The US central bank lowered rates for a third straight meeting, but subtly changed the wording of its statement to hint at greater uncertainty around future reductions as it seeks to support growth while keeping inflation under control.

The Fed now expects the US economy to grow by 2.3% next year, up from its previous projection of 1.8%, while anticipating that the pace of inflation will slow to 2.4%. Lower rates tend to benefit metals and other commodities, both by boosting their appeal relative to yield-bearing investments like bonds, and by lowering borrowing costs for capital-intensive manufacturing and industrial businesses.

The sanguine outlook for the US economy also bolsters the demand outlook for industrial metals after a sharp decline in Chinese copper consumption over recent months. Beijing signaled on Monday that it would stick with a “proactive” fiscal approach and maintain a “moderately loose” monetary stance as it seeks to strengthen domestic demand. Copper Hits Fresh All-Time High After Fed Delivers Rate Cut_1

Copper Hits Fresh All-Time High After Fed Delivers Rate Cut_1

Copper has rallied almost 35% this year, buoyed by a series of mine disruptions and fears of a shortage outside the US as traders rush supplies there ahead of potential tariffs next year. Rising consumption by the renewable energy sector is underpinning demand for the red metal over the longer term.

Copper was up 2.7% to settle at $11,872 a ton on the London Metal Exchange, as all metals except nickel rallied on the exchange. Tin surged 4.4% to $41,751, the highest since April 2022, while zinc jumped 3.9%.

Source: Bloomberg

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Manuel

Political

U.S. Treasury Secretary Scott Bessent is proposing to overhaul a regulatory panel that monitors the nation's financial stability, by advocating for looser regulations.

The Financial Stability Oversight Council, a U.S. body created in the wake of the 2008 global financial crisis, monitors risks to the financial system and coordinates regulators' approaches to overseeing the U.S. financial system. In a letter released by Bessent Thursday, he said “too often in the past, efforts to safeguard the financial system have resulted in burdensome and often duplicative regulations."

“Our administration is changing that approach," said Bessent, who chairs the committee, which is meeting on Thursday.

Bessent said the council will begin to "consider where aspects of the U.S. financial regulatory framework impose undue burdens and where they harm economic growth, thereby undermining financial stability.”

Voting members of the FSOC committee include the head of the Board of Governors of the Federal Reserve System; the Comptroller of the Currency; the director of the Consumer Financial Protection Bureau; the chairman of the Securities and Exchange Commission and several other agency heads.

It was established in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act, a sweeping U.S. financial reform law created to prevent future economic meltdowns.

A critic of the Trump administration, Sen. Elizabeth Warren, D-Mass., panned the idea of loosening financial regulations, saying “taking this hands-off approach to financial stability would leave our financial system and economy at greater risk in any economic environment.”

“Going down this path just as cracks are emerging in the financial system and yellow lights are flashing across our economy is especially reckless," she said in a statement, citing the recent bankruptcies of subprime auto lender Tricolor Holdings, auto parts company First Brands, and home remodeling platform Renovo Home Partners.

Source: AP

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Devin

Commodity

Dec 11 (Reuters) - Gold rose on Thursday to hit its highest level in more than a month after the U.S. Federal Reserve's quarter-point rate cut pushed the dollar lower, while silver surged to a fresh record high.

Spot gold was up 1.2% at $4,275.39 per ounce, as of 11:49 a.m. ET (16:49 GMT), reaching its highest level since October 21. U.S. gold futures for February delivery gained 1.9% to $4,303.90 per ounce.

Spot silver added 3.2% to $63.77 per ounce, hovering near the session's record high of $63.93.

"Silver seems to be pulling gold up with it and it's also pulling up platinum and palladium...there's a lot of momentum behind it right now," said Marex analyst Edward Meir.

The U.S. dollar slipped to over seven-week low against a basket of rival currencies, making greenback-priced gold more affordable for overseas buyers.

"Inflation hasn't really come back down to the Fed's 2% target, so, when you're lowering rates in an inflationary environment that is still not optimum, and that's very bullish for gold," Meir added.

The Federal Reserve on Wednesday delivered its third consecutive quarter-point cut, while policymakers also signaled a likely pause in further reductions as they monitor labor market trends and inflation that "remains somewhat elevated".

Lower interest rates tend to be favorable to gold, as it is a non-yielding asset.

U.S. President Donald Trump has advocated for lower interest rates since the start of his second term in January, and his nominee for the next Federal Reserve chair is expected to maintain that stance. White House economic adviser Kevin Hassett is currently viewed as the leading candidate for the position.

Investors now await the monthly U.S. non-farm payrolls report, set to be released on December 16, for fresh cues on the Fed's policy path.

Meanwhile, India's pension regulator on Wednesday permitted investments in gold and silver ETFs for the country's pension funds.

Elsewhere, platinum gained 2.5% to $1,698.10, while palladium rose 1.3% to $1,494.88.

Source: Reuters

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Justin

Economic

CRED TO THE FED: JOBLESS CLAIMS JUMP, TRADE GAP NARROWEST IN OVER FIVE YEARS

Defenders of Powell & Co's December rate might look to today's data to support the notion that a softening labor market warranted the move.

But is it smoke and mirrors?

Last week, 236,000 U.S. workers joined the queue outside the unemployment office (USJOB=ECI), a 22.9% jump from the previous week and 16,000 more than analysts expected.

Ironing out weekly volatility, the four-week moving average of initial claims now has a slight upward bias, but remains comfortably within the range associated with healthy labor market churn.

At any rate, the recent spate of corporate layoff announcements is yet to have an obvious impact on the claims data.

In fact, the oversized moves in this week's claims data can be at least partially blamed on seasonality.

"Taking the past few weeks together, claims remain relatively low despite a recent uptick in layoff announcements," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Surprising in the other direction, ongoing jobless claims (USJOBN=ECI), which are reported on a one-week lag, unexpectedly dropped 5.1% to 1.838 million, or 109,000 shy of consensus. While still elevated, the jumbo-size weekly plunge happens at a time of weak hiring and consumer survey data that suggests laid-off workers are finding it increasingly difficult to find a replacement gig.

It's possible that at least some of the drop can be attributed to benefits expiry, but not all of it.

"Continued claims aren't immune to seasonal volatility so we won't read anything into that decline," Houten adds.

Separately, investors were graced with trade data harkening back three months, when the government was a mere gleam in Washington's eye.

Way back in September, the trade gap (USTBAL=ECI), or the difference in the value of goods and services imported to the U.S. and those exported abroad, unexpectedly narrowed by 11.0% to $52.8 billion.

The reading is 2.3% narrower than economist predictions, notching the lowest trade deficit since June 2020.

Under the hood, exports grew by 3.0% with a boost from a weak dollar, while the ebbing effects of punishing tariff policies helped imports, which account for the lion's share of the United States' total international trade and which partially rebounded from August's 5.2% drop, edging up 0.6%.

Imports are a GDP detractor, so the shrinking trade deficit could bode well for the Commerce Department's next take on July-September GDP, if it ever arrives.

"We aren't sure we'll see consistently smaller trade deficits going forward," says Oren Klachkin, financial markets economist at Nationwide. "Looking ahead, we see the trade deficit remaining relatively wide next year."

"Firmer export growth fueled by a pickup in global demand and weaker dollar will be largely offset by stronger imports that will be a consequence of firmer US domestic demand."

Source: TradingView

To stay updated on all economic events of today, please check out our Economic calendar

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Adam

The FOMC decision to cut rates by 25 basis points, along with the introduction of reserve management operations, was widely expected—at least by me, and consistent with what I had been highlighting ahead of the meeting. It seemed clear that the Fed needed to prevent reserves from falling further, as the decline had been putting pressure on the overnight funding market, which we have been discussing here for months.

Instead of freezing assets, they are trying to stabilize reserves, which is the more pressing issue. Perhaps things were worse behind the scenes than on the surface.

The Fed clearly felt it had to act, announcing roughly $40 billion in bill purchases this month. In reality, this mostly offsets the week-to-week fluctuations we typically see on the balance sheet and may help lift reserves slightly. But the move feels a bit late, and the way they are implementing it almost comes across as a half-baked approach.

The $40 billion does not appear to be a static amount. It sounds as though we will be learning the specific figures on the ninth of each month, at least until April, when the operation is expected to end.

It is probably not a coincidence that the operation concludes around the same time Jay Powell is set to step down as Fed chair. It may even have been structured intentionally so that a new chair can come in and implement whatever policies they believe are appropriate.

In a way, it seems Powell is trying to avoid letting the situation continue deteriorating under his tenure and is positioning himself to step aside before anything unfolds that could make the current environment worse.

However, the real proof will come when we see how the overnight funding market actually behaves on a day-to-day basis—where SOFR trades and where volumes settle—and that will ultimately determine whether this operation is truly successful.

In my view, $40 billion is unlikely to be enough to offset year-end funding pressures, and it will probably not be sufficient in January to meaningfully lower the rate pressures we have been seeing in a short period of time. But again, the results will speak for themselves as we monitor these dynamics day to day.

Luckily, this comes at the perfect time for the $80 billion in Treasury settlements on Monday, 15 December.

Anyway, Oracle (NYSE:ORCL) is getting smashed, down 10% on Wednesday, after its cloud revenue missed estimates and the company noted that CAPEX was rising to $50 billion from $35 billion. I guess that means today, we will be on CDS watch for the AI names once again.

Source: investing

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Devin

Economic

The number of Americans filing new applications for unemployment benefits increased by the most in nearly 4-1/2 years last week, but the surge likely does not suggest a material weakening in labor market conditions, as the claims data are volatile around this time of year.

The larger-than-expected rise in initial weekly jobless claims reported by the Labor Department on Thursday reversed the sharp drop in the prior week, which had pushed filings to a three-year low.

Economists said adjusting the data for seasonal fluctuations is always a challenge during the start of the holiday season, and recommended focusing on the four-week moving average to get a better read of the labor market. The four-week average of claims suggested labor market conditions remained stable.

"The bulk of this week-to-week volatility is seasonal noise," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "On an underlying basis, nothing has changed, but if anything, we would have to say that initial claims are running slightly below the long-established trend, one of several data points that refutes (Federal Reserve) Chairman (Jerome) Powell's characterization of a shaky labor market."

Initial claims for state unemployment benefits jumped 44,000, the biggest increase since mid-July of 2021, to a seasonally adjusted 236,000 for the week ended December 6, the Labor Department said. Economists polled by Reuters had forecast 220,000 claims for the latest week.

Claims had dropped to a three-year low in the prior week, which was partly attributed to difficulties adjusting the data around the Thanksgiving holiday. The four-week moving average of claims, which irons out seasonal fluctuations, rose 2,000 to 216,750 last week. Economists continue to describe the labor market as being in a "no-fire, no-hire" state despite a raft of layoff announcements by large corporations, including Amazon.

"It's a little surprising that recent layoff announcements haven't translated into a shift higher in initial claims," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

"It may be that some workers who have lost their jobs have received generous severance packages or have found other employment, although that is more difficult in the current labor market with a depressed rate of hiring."

A line chart with the title 'Continued filings for unemployment benefits by federal workers'

The Fed on Wednesday cut its benchmark overnight interest rate by another 25 basis points to the 3.50%-3.75% range. The U.S. central bank has cut rates three times this year. Powell told reporters the labor market "seems to have significant downside risks," noting there was an overcounting of nonfarm payrolls, which policymakers believed was still persisting.

U.S. stocks were trading mostly lower. The dollar weakened against a basket of currencies. U.S. Treasury yields also fell.

In September, the Bureau of Labor Statistics estimated 911,000 fewer jobs were created in the 12 months through March than previously estimated, the equivalent of 76,000 fewer jobs per month. The BLS will publish the final payrolls benchmark revision in February along with January's employment report.

ATTENTION SHIFTS TO NOVEMBER'S EMPLOYMENT REPORT

The employment report for November, delayed by the 43-day government shutdown, will be released next Tuesday. It will incorporate October's nonfarm payrolls data. The unemployment rate for October, however, will not be available because the shutdown prevented the collection of data for the household survey, from which the jobless rate is calculated.

The labor market has stagnated amid low supply and demand for workers, which economists blamed on reduced immigration and on import tariffs. The adoption of artificial intelligence for some job roles is also eroding demand for labor.

The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, dropped 99,000 to a seasonally adjusted 1.838 million during the week ending November 29, the claims report showed.

Some of the decline in the so-called continuing claims could be the result of people exhausting their eligibility for benefits, limited to 26 weeks in most states. Continuing claims are consistent with a gradual rise in the unemployment rate.

A line chart with the title 'US unemployment claims'

The unemployment rate increased to 4.4% in September from 4.3% in August. The Fed's new Summary of Economic Projections estimated the jobless rate would end this year at 4.5% and ease slightly to 4.4% in 2026, unchanged from the projections in September.

A separate report from the Commerce Department's Bureau of Economic Analysis and Census Bureau showed the trade deficit contracted 10.9% to $52.8 billion in September, the lowest level since June 2020, as goods exports soared and imports rose marginally. The smaller trade gap suggested trade likely contributed to gross domestic product in the third quarter.

Exports climbed 3.0% to $289.3 billion in September. Goods exports surged 4.9% to $187.6 billion, with shipments of consumer goods increasing to a record high. Imports rose 0.6% to $342.1 billion. Goods imports advanced 0.6% to $266.6 billion. But imports of automotive vehicles, parts and engines were the lowest since November 2022.

The goods trade deficit compressed 8.2% to $79.0 billion, the lowest level since September 2020.

The Atlanta Fed estimated GDP increased at a 3.5% annualized rate in the third quarter. The government will release its first estimate of third-quarter GDP on December 23, a delay prompted by the shutdown. The economy grew at a 3.8% pace in the April-June quarter.