Clever move from the President
We were expecting executive orders on the payroll tax, student loan interest and rental eviction on the weekend but Trump surprised with another one: Unemployment benefits.
Trump signed an order that will boost benefits by $300/week if individual states pay an extra $100/week.
The move was rumored at times last week but it's politically and legally difficult. It is the political equivalent of Trump pulling a rabbit out of his hat. Previously, House Democrats had all the leverage in negotiations because benefits were running out and Republicans were blocking an extension of the $600/week payments.
Now, Trump gets to claim he delivered a $400/week boost along with a payroll tax cut (which is really a deferment). If it's challenged in court, he can argue that Democrats are trying to take the money away. The move also diminishes the urgency to make a deal and saps the Democratic leverage they hoped to use to extend benefits for the longer term.
It's a brilliant political move.
What about markets?
Ultimately, I think it's a benefit to the US dollar and will hurt risk trades. The payroll tax cut is undoubtedly stimulative but it should have been priced in. Moreover, it sets up a fiscal cliff and uncertainty about whether the money will need to be repaid. I think it's ultimately waived but that's also not clear. If companies don't hold back this money, and instead give it back to employees, then companies could be on the hook for paying it later and might find it difficult to collect from employees.
The bigger theme is that Democrats have lost leverage to push through a +$2 trillion stimulus. Now it's much likely to be closer to $1 trillion or $1.5 trillion. It's also possible there is no deal until the courts weigh in and that payments are blocked until courts decide.
The smaller deficit should boost the dollar and weigh on precious metals. There's also a chance risk aversion kicks in, but I don't see that initially.
