US markets lifted by infrastructure bill announcement

Today's markets were feeling more buoyant after the Bank of England didn’t do anything to upset the apple cart and the Fed speakers were all bullish on the economy through less hawkish than the FOMC meeting may have felt. The big news was around the infrastructure bill agreements. There should be at least $559bln more of new spending into the US economy.

Market Wrap

Big day in the equity markets as bench market indices all trade higher, as long binds trade higher and inflation expectations drop.

The Nasdaq pushed to new all-time highs as did the S&P500 as the tech was part of the big beneficiaries on today’s news.

This morning the Bank of England kept rates unchanged and were Dovish in their assessment of the current underlying economic conditions. The current bank rate stays at 0.10%, quantitative easing remains at £895 billion, and the inflation target is still 2.0%

The Monetary Policy Committee is keeping with the view of monitoring inflation but feels the current policy is adequate to deal with the transitory nature of rising CPI. In their statement they said

“The Committee’s expectation is that the direct impact of rises in commodity prices on CPI inflation will be transitory. More generally, the Committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back. There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected. Taking together the evidence from financial market measures and surveys of households, businesses, and professional forecasters, the Committee judges that UK inflation expectations remain well-anchored.”

The pound was unable to get through the near-term resistance of 1.4000 and proceeded to correct lower on the announcement. Looking at the sentiment indicator on the ActivTrader platform traders were unchanged in their views on the as-expected data.

The EURGBP took advantage of the weakening GBP but has only gone so far as to set up for a new trade to the downside. A close below the 20 periods ema would be the trigger, assuming no significant swing high has been taken out prior to that move.

In the afternoon session the US final GDP came in as expected but the weekly jobless claims were worse than expected with fewer claims dropping off. The moves seen in the US equities could largely be put down to the announcement that President Biden has an infrastructure deal in place, though “neither side got everything they wanted”.

The $2trillion Infrastructure bill that was proposed earlier this year has been whittled down to around $1trillion, so some market participants may feel a little short-changed if they had been banking on >$2trillion.

Different senators are coming out explaining what they have decided on, with the price tag, scope, and no new taxes being key parts of the deal. This is great news for the economy as more stimulus should keep the fiscal flows moving forward over the coming years, having seen the net transfer from the US government to the non-government fall off this week as the Cares Act direct payments are stopped.

The US dollar is trading with yesterday’s range awaiting some direction from the likes of the EURUSD or a move to the US dollar as a safe haven.

TLT is holding up as US treasury yields from the notes and bonds dip. T-bill yields were higher today and that could be a factor of money markets selling T-Bills to cash in and use the overnight loan facility from the Fed.

There has been a lot of talk from the Fed this week already and today we heard from the New York Fed President John Williams. Today he noted that the United States economic recovery has been faster and broader than projected and that businesses nationwide had difficulties keeping up with such a strong rebound. He is also looking out to the next 6 months where in his opinion the supply chain shocks and demand levels will have stabilized.