- Weekly global market focusÂ
- House will work on infrastructure this week while Senate is gone for its recess
- Pandemic continues to fade in U.S.
Weekly global market focus — The U.S. markets this week will focus on (1) any further developments in Washington on an infrastructure bill, (2) Fedspeak as the Fed continues to push the view that the current inflation surge is transitory and that the Fed is in no hurry to raise interest rates, (3) oil prices as OPEC+ is expected to decide at its meeting this week to raise production for August but within the limit of increasing demand, (4) the pandemic statistics, and (5) a light earnings schedule with reports from five of the S&P 500 companies.
Key U.S. economic reports this week include Tuesday’s U.S. home price and consumer confidence reports, Wednesday’s ADP report (expected +550,000), Thursday’s June ISM manufacturing index (expected -0.2 to 61.0), and Friday’s June payroll report (expected +700,000).
In Europe, the markets will be watching ECB President Lagarde’s comments on Friday at an event in France. Tuesday’s Eurozone economic confidence index is expected to show a +1.5 point increase to 116.00, adding to May’s +4.0 point increase. Wednesday’s June Eurozone CPI is expected to ease to +1.8% y/y from May’s +2.0%, and the June core CPI is expected to dip to +0.9% y/y from May’s +1.0%.
In Asia, China’s June manufacturing PMI on Tuesday night is expected to show a -0.1 point decline to 50.9, adding to May’s -0.1 point decline. The June non-manufacturing PMI is expected to show a small +0.1 point increase to 55.3, adding to May’s +0.3 point increase. China’s June Caixin manufacturing PMI on Wednesday night is expected to show a small +0.1 point increase to 52.1, adding to May’s +0.1 point increase.
House will work on infrastructure this week while Senate is gone for its recess — The House will be in session this week before leaving for their Fourth of July recess on Thursday. The House this week is expected to vote on some bills that may eventually be included in the infrastructure bill.
The Senate, by contrast, left last Thursday for its Fourth of July recess. The Senate will return from its recess on July 12, while the House will return on July 18. Congress will then be in session for only a few weeks before leaving for their August recess in early August.
Democrats in the Senate are following a two-track process for an infrastructure bill, pursuing the bipartisan framework agreement announced last Thursday while at the same time proceeding with a Democratic-only reconciliation bill. If the bipartisan plan falls through, as seems likely, then Democrats will simply roll that spending into their larger reconciliation infrastructure bill. The markets continue to carefully watch comments on the infrastructure plan by moderate Republicans and Democrats, who are the linchpins for an eventual infrastructure bill.
Senate Minority Leader McConnell last Thursday criticized the Democrats’ plan to follow a two-track process on infrastructure, saying that the Democratic-only reconciliation bill essentially makes a mockery of the bipartisan plan. Other Republican Senators launched similar attacks late last week, indicating that there will be strong Republican opposition to the Democrats’ infrastructure plans. It remains doubtful whether 10 Republican Senators in the end would allow Democrats to avoid a Senate filibuster, assuming that Democrats can even hold together their 50-member caucus.
The stock market last week reacted favorably to the news of a bipartisan infrastructure agreement, with a rally in infrastructure stocks such as Caterpillar and steel companies. Infrastructure spending would obviously be bullish for stocks, but the stock market was also likely encouraged about the fact that any bipartisan infrastructure bill would not include corporate tax hikes. However, the fact that Democratic leaders clearly stated that they are on a two-track infrastructure process means that corporate tax hikes are still on the agenda for the reconciliation portion of any infrastructure bill.
When Congress returns to Washington after Labor Day, the first order of business will be to pass a spending bill to avoid a U.S. government shutdown when the new fiscal year begins on October 1. Congress must also deal with the debt ceiling, which will be reinstated on July 31. Treasury Secretary Yellen last week urged Congress to act on the debt ceiling and said that the Treasury could run out of cash as soon as August, which would mean the Treasury would start defaulting on some of its obligations.
Pandemic continues to fade in U.S. — The pandemic continues to fade in the U.S. despite reduced restrictions, indicating that vaccinations are successfully reducing new infections. The 7-day average of new U.S. Covid infections fell to a 15-month low of 11,351 last Thursday. That was the lowest level since March 2020 and was down by -95% from January’s peak of 250,558. The 7-day average of U.S. Covid deaths was at 321 on Friday, mildly above the 15-month low of 269 posted in mid-June.
The CDC reports that 45.7% of the U.S. population is now fully vaccinated and that 53.8% of the U.S. population has received at least one vaccination dose. Bloomberg reports that an average of 763,793 daily vaccination doses were delivered over the past week. That is down sharply from previous levels of over 2 million per day this past spring, but still represents decent progress. Bloomberg calculates that at the current vaccination rate, it would take another 7 months to cover 75% of the U.S. population, which is viewed by some as a benchmark of herd immunity.
