The Market Today
House Sends Infrastructure Package to President
by Craig Dismuke, Dudley Carter
Fed Communications: It was scheduled to be a quiet morning from an economic news perspective. However, there are now five Fed officials on the tape today. Vice Chair Clarida will discuss monetary policy at 8:00 a.m. CT. Fed Chair Powell is scheduled to speak at 9:30 a.m. Also speaking are Philadelphia’s Harker, Chicago’s Evans, and Governor Bowman.
OTHER ECONOMIC NEWS
House Sends Infrastructure Package to President: After negotiating around it since August, the House finally passed the Senate’s Bipartisan Infrastructure Framework late Friday night. According to a WSJ synopsis, the package “includes about $1 trillion for rural broadband, public transit, roads, bridges, ports, electric-vehicle charging stations, and pollution cleanup. The bill doesn’t include tax increases.” The spending levels are approximately $500 billion above previously budgeted levels over the next ten years. Funding a portion of the package is more than $200 billion in unused pandemic relief funds, along with some additional revenue increases. The CBO indicated that the package would increase the federal budget deficit by $256 billion over that horizon. The passage of the BIF was largely expected to eventually occur. Going forward, passage of any additional tax and spending packages of substantive size would be more of a surprise for markets. (WSJ Summary of BIF; CBO Projections)
ICYMI – November 5, 2021 Weekly Market Recap: Treasury yields declined last week despite the Fed’s tapering announcement and some firmer economic data, including Friday’s better-than-expected jobs report. Central banks were a major focus. Australia’s ditched a yield target for a short-maturity bond while the Bank of England surprised markets by not raising rates. Those banks and the ECB pushed back against market bets for quick rate hikes next year. The Fed announced it will begin to wind down its $120 billion in monthly asset purchases this month at a pace of $15 billion a month, ending purchases in June 2022 if the plans aren’t altered. The new statement hedged officials’ transitory assessment of strong inflation and Powell said bottlenecks and high inflation are likely to last “well into” 2022. The Fed will remain patient, he said, but the current policy stance puts them in a position to “address the range of plausible outcomes.” Both ISM reports topped expectations, the Services Index with a big gain to a new record, and reflected persistent supply constraints. Capping off the week, October’s jobs report showed labor demand remained solid but supply issues remained. Job growth of 531k beat expectations for 450k on broad-based gains across private industries and the prior two months were revised up by a combined 235k. Unemployment fell more than expected. Participation, however, was disappointingly flat. Amid signs of continued labor tightening, wage growth remained brisk at 0.4% which lifted the YoY rate from 4.6% to 4.9%. For the week, the 2-year yield fell 9.6 bps to 0.40%, the 5-year dropped 12.8 bps to 1.06%, and the 10-year yield slipped 10.1 bps to 1.45%; the moves trailed notably larger declines elsewhere amid the foreign central bank developments. The S&P 500 rose 2.0% and set a new record in each session; the three major indexes combined for 14 records last week. Click here to view the full recap.
Yields Move Slightly Higher after Big Weekly Declines: U.S. markets have yet to show a convincing response to the House passing the bipartisan infrastructure bill late Friday night, pushing the legislation on to President Biden to sign. Stock futures were little changed and hanging out near record levels after recovering from losses during the Asian trading session. Global equities treaded water and were roughly flat on average across both Asia and Europe. Treasury yields were leading a rise in global sovereign rates on Monday, but the moves were modest compared with large declines last week. At 6:30 a.m. CT, the Treasury curve had shifted up around 3 bps across maturities from two to ten years. The absence of economic data today will shift attention to Monday’s slate of Fed speakers for any analysis of how last Friday’s better-than-expected jobs report, which showed continued tightening (more above) ahead of this week’s inflation updates, may be impacting views. Washington will also be a key focal point as investors watch for developments in the debate of Democrats’ larger spending bill now that infrastructure has been settled.