- Weekly global market focus
- Stocks fade as Fed turns more hawkish
- White House says it will respond this week to bipartisan infrastructure proposal
- U.S. Covid infections fall to new 14-3/4 month low
Weekly global market focus — The U.S. markets this week will focus on (1) developments in Washington on an infrastructure bill, (2) a busy week for Fedspeak as the markets further assess how hawkish FOMC members have turned, (3) testimony by Fed Chair Powell on Tuesday regarding pandemic emergency aid and the economy, (4) the Treasury’s sale of $209 billion of T-notes, and (5) a light earnings week with reports from 7 of the S&P 500 companies (including FedEx and Nike on Thursday and Carmax and Paychex on Friday).
This week’s U.S. economic calendar is busy with key reports including Tuesday’s May existing home sales report, Wednesday’s new home sales report, Thursday’s durable goods reports and Q1 GDP revision, and Friday’s consumer sentiment and PCE deflator reports.
In Europe, the focus will continue to be on the pandemic and how soon European economies can fully reopen. ECB President Lagarde appears today before the European Parliament and speaks again on Wednesday. Wednesday’s June Markit Eurozone manufacturing PMI report is expected to show a -1.0 point decline to 62.1, falling back after May’s small +0.2 point increase. The Bank of England on Thursday is expected to leave its monetary policy unchanged.
Stocks fade as Fed turns more hawkish — The S&P 500 index last Friday fell to a 1-month low and closed the week down -1.91%. The Nasdaq 100 index last week fared better and closed the week up +0.37%.
The S&P 500 index faded last week after the FOMC began talks on QE tapering at its Tue/Wed meeting and turned more hawkish on its rate-hike projections. The Fed’s dot-plot shows that 7 of 18 members now see a rate hike in 2022, and 11 of 18 members now see at least two rate hikes in 2023.
St. Louis Fed President Bullard last Friday added that the FOMC “has been surprised by stronger-than-expected growth over the last six months with more inflation than we were expecting, and it’s natural that we’ve tilted a little bit more hawkish here.”
The general market view is that the FOMC is likely to provide an early-warning about QE tapering at either the August Jackson Hole conference or the September FOMC meeting. The consensus is that the FOMC will then make a formal announcement of QE tapering sometime between September and December, taking effect a month or two after the announcement.
The 10-year T-note yield initially spiked upward on last Wednesday’s hawkish FOMC meeting but then fell on Thursday and Friday. The 10-year yield fell sharply by a total of -14 bp on Thursday and Friday and closed Friday at 1.44%, which was only 1 bp above the early-June 3-month low of 1.43%. The longer-end of the Treasury curve seemed to welcome the Fed’s more hawkish stance as a sign that the Fed will not allow inflation to get out of control.
White House says it will respond this week to bipartisan infrastructure proposal — President Biden on Friday told reporters that he would respond to the bipartisan infrastructure plan this week after he receives a final copy of the plan, possibly today.
The White House so far doesn’t seem to like the plan, mainly because of its pay-fors. The White House spokesman last Friday flatly rejected one of the main pay-for idea of indexing the gasoline tax, which would raise about $30 billion over ten years. Democrats also don’t like the idea of expanding the gasoline tax to include electric vehicles. The White House also doesn’t like the idea of putting unused pandemic aid money to work on infrastructure spending. Another idea is to boost tax revenues from better tax enforcement, although that is a slippery claim that often doesn’t raise the money that it claims.
The bottom line is that the bipartisan infrastructure plan is evaporating as redlines are raised by both sides. The only real question continues to be how long it will take Democrats to give up on the bipartisan talks and move forward with a Democratic plan. However, even that tactic is in question because of the insistence of Democratic Senators Manchin and Sinema to go down the bipartisan road as far as possible.
House Speaker Pelosi has been aiming to pass an infrastructure bill by the Fourth of July, but that target now seems in doubt. Senate Majority Leader Schumer has said that he is following a two-track process in the Senate, allowing the bipartisan talks to continue while he pushes forward with the Democratic-only budget reconciliation process.
U.S. Covid infections fall to new 14-3/4 month low — The U.S. Covid infection rate continues to drop, which is particularly good news since infections are falling even as restrictions are being dropped. That suggests that vaccinations are having a big impact on dampening the pandemic.
The 7-day average of new daily Covid infections on Thursday fell to a new 14-3/4 month low of 11,412. Covid infections are at the lowest level since March 2020 and have plunged by -95% from the peak seen this past January.
Meanwhile, vaccination levels continue to steadily climb, although at a slower pace. The CDC says that 45.1% of the total U.S. population has now been fully vaccinated and that 53.3% of the U.S. population has received at least one dose. Bloomberg reports that daily vaccinations in the U.S. are running at an average of 1.33 million per day.
