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Futures Recover All Losses From “Fed-Treasury Split” Scare

After futures dropped sharply, sliding as much as 1% during the Asian session after Steven Mnuchin announced that the Treasury would seek to recover nearly $500bn in cash from the Fed as it sought to end eight emergency credit facilities on Dec 31, sparking fears that helicopter money – which as a reminder is a coordination between the Fed and Treasury – would expire by year end, markets have managed to recover all overnight losses with the S&P last trading flat perhaps and just shy of all time highs, as traders realized that whether under Mnuchin or Brainard, the Treasury will promptly restore all emergency facilities in 2021 – it simply has no choice. Furthermore, Mnuchin said he is merely carrying out the law prescribed by the Cares Act, and his actions were not an indication of disagreement between the top two U.S. economic policymakers.

The mood was boosted by the now daily dose of positive vaccine news, which came shortly before 7am when Pfizer and BioNTech said they would submit EUA for their vaccine today (as expected), noting that the vaccines would be ready for distribution within hours of receiving approval. This could potentially enable use of the vaccine in high-risk populations in the U.S. by the middle to end of December 2020, dramatically shortening the time to market.

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