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Explainer: Democratic Senator Manchin upends Biden’s hope to reshape economy

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October 27, 2021

By Jarrett Renshaw

(Reuters) – Democratic Senator Joe Manchin has leveraged his party’s slim majority in Congress to reshape President Joe Biden’s spending bill, slashing its initial price tag of $3.5 trillion and blocking policy proposals on climate and social programs.

In a 50-50 Senate where all Republicans oppose the spending plan, Democrats can only pass it if every one of their members signs on and Vice President Kamala Harris casts a tie-breaking vote.

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That means the party has no choice but to bend to Manchin’s will if they want the bill to pass. He has used that clout to knock down key parts of the package.

Manchin hails from West Virginia, a heavily Republican, sparsely populated coal- and natural gas-producing state that sits at or near the bottom of U.S. health, education and infrastructure rankings.

The founder and partial owner of a private coal brokerage, Enersystems, Manchin has been reluctant to rein in fossil fuels, complicating Democratic efforts to combat climate change.

He has also opposed the expansion of many social programs. At the center of the political stage, Manchin has outlined his philosophy this week with reporters, at the Economic Club of Washington and in the halls of Congress.

Here is a list of the issues where Manchin has pushed back against Biden’s plans.

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PAID FAMILY LEAVE AND CHILDCARE

Biden wanted to provide Americans 12 weeks of paid family leave for new parents, caretakers of ill family members and those with serious medical conditions, compensating them for up to $4,000 in wages a month.

Manchin has signaled he opposes the measure, forcing Democrats to consider paring it down to four weeks or scrapping it altogether. It would represent a significant blow to Biden.

Asked on Tuesday whether he had concerns about the paid leave proposal, Manchin said: “I’m concerned about an awful lot of things.”

He does support a push for universal pre-kindergarten education. “I’m for pre-K. Whatever it costs,” he said on Monday night. “We can do that.” He said he had pushed to ensure that faith-based groups can also provide childcare.

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Manchin said he told Biden: “I believe that government should be your partner and not your provider.”

MEDICARE EXPANSION

Democrats want to expand the Medicare healthcare program for seniors to cover dental, hearing and vision and also extend Medicare-style insurance benefits to low-income people in states that did not expand Medicaid coverage under the Affordable Care Act, better known as Obamacare.

Manchin opposes both measures, saying the federal government cannot afford to provide added benefits like dental and that Medicare faces insolvency by 2026 even without the added benefits.

“You’ve got to stabilize that first before you look at basically expansion. So if we’re not being fiscally responsible, that’s a concern,” Manchin said.

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CLEAN ELECTRICITY PERFORMANCE PROGRAM

Democrats wanted to reward power utilities for investing in renewable energy such as wind and solar and fine those that do not. It was considered critical in order for Biden to achieve his goal of cutting U.S. emissions by about 50% by 2030.

Manchin has killed the proposal, arguing it would unfairly punish utility companies that are already making the transition. It would also help move power plants away from coal, a major industry in West Virginia.

“It makes no sense to me at all for us to take billions of dollars and pay utilities for what they’re going to do as the market transitions,” Manchin told CNN in September.

METHANE FEE

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Manchin also opposes a proposal to tax U.S. oil and gas producers for methane emissions above a certain threshold.

The greenhouse gas methane is considered the biggest cause of climate change after carbon dioxide.

STEPPED UP IRS ENFORCEMENT

Manchin criticized a proposal to force banks to report more account information to the Internal Revenue Service, complicating Democratic efforts to step up tax enforcement on higher earners as a way to raise hundreds of billions of dollars for their social spending bill.

The Democratic proposal would require banks to report to the IRS any accounts that see activity in excess of $10,000 a year, excluding wages.

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Manchin said on Tuesday that he thinks the proposal will not go through. “Do you understand how messed up that is?” he said he told Biden. “This cannot happen. It’s screwed up.”

ADDITIONAL ELECTRIC-VEHICLE FUNDING

Manchin supported a measure in a separate bipartisan infrastructure bill that would provide $7.5 billion to help build a nationwide charging network for electric vehicles.

But he now says that is enough, potentially dashing Democratic hopes of providing billions more in funding.

“I said I’m having a hard time with that. I don’t remember the federal government building filling stations when Henry Ford invented the Model T,” Manchin said on Tuesday.

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(Reporting by Jarrett Renshaw and Jeff Mason; Editing by Heather Timmons and Peter Cooney)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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