By Philip Marey, senior US strategist at Rabobank

Yesterday, the S&P500 rose by 1.49%, after US consumer confidence, as measured by the Conference Board, improved much more than expected, to 108.3 in December from 101.4 (revised) in November. Both the assessment of the current situation and expectations were better than last month. There was a substantial improvement in labor market perspectives (jobs plentiful-jobs hard to get) and a decline in inflation expectations. In contrast, US existing home sales were even worse than expected. They fell by 7.7% in November to 4.09 million, very close to the COVID-era low of 4.07, recorded in million May 2020. The 10 year US treasury yield declined to 3.66% from 3.70%.

Ukrainian President Zelensky met with US President Biden at the White House and addressed a joint session of the US Congress. Biden announced another $1.85 billion in military aid to Ukraine, including more ammunition for the HIMARS artillery missile systems, and, for the first time, a Patriot surface-to-air missile battery. The US has provided $21.9 billion in military and economic aid so far, and the omnibus bill that Congress is voting on this week would add an additional $44.9 billion to be rolled out in the coming months.

Meanwhile, the bipartisan spending bill that lawmakers are trying to push through Congress before Christmas was delayed as Republicans demanded a vote on preserving Title 42, a measure from the COVID-era to expel illegal immigrants crossing the southern border, at a simple majority threshold, before continuing with the omnibus bill. The omnibus bill provides $1.65 trillion for fiscal year 2023, including $858 billion in military spending and $772.5 billion in nondefense discretionary spending. This includes an additional $44.9 billion in military and economic aid to Ukraine. However, the omnibus bill also contains items that really deserve separate bills, such as an update of the 1887 Electoral Count Act, but are now being pushed through the lame duck session with the threat of a government shutdown, or more importantly, members of Congress missing their Christmas dinner. Could this be the real Santa Clause?

This omnibus bill, if approved, may be the last big spending package until September next year. As we highlighted in Midterm implications, the political dynamics in Washington DC will undergo a regime shift in January when the new Congress, that was elected in the midterms in November, convenes. When the Republicans take over the House of Representatives and keep their Commitment to America, we are going to see the end of the Democratic spending spree of the last two years. The Democrats are trying to use the current lame duck session to pass the spending bill for fiscal year 2023 on their terms. The next large bills will be the spending bill for fiscal year 2024 and the renewal of the Farm Bill, which expires at the end of September. With the House Republicans back in charge, we could be heading for a year of fiscal standoffs, including the most risky variant related to the debt ceiling.

We complete this week’s Tim Allen trilogy with The Santa Clause. This is the last Global Daily of 2022 and we will resume publication on Tuesday January 3, 2023.