The Market Today
Negotiations on Infrastructure Package Continue with Presidential Commitment
by Craig Dismuke, Dudley Carter
Quiet Day with Some Fedspeak: Today’s calendar is quiet with the Dallas Fed’s June National Activity Index expected to pull back fractionally from one of its highest readings on record. Speaking today from the Fed are Richmond Bank President Barkin (11:00 a.m. CT) and Fed Vice Chair Quarles (12:10 a.m.). Quarles will be discussing the ongoing deliberations on a central bank digital currency.
24 HOURS OF MARKET ACTIVITY
S&P 500 Holding Near Friday’s Record Early Monday as Treasury Yields Drift Lower Following Weekly Rise: S&P 500 index futures were marginally positive before 7 a.m. CT on Monday following the index’s all-time high close on Friday to cap a strong week for U.S. equities. The leveling off occurred alongside broadly weaker equities across Europe which had dragged the Stoxx 600 0.2% lower. Many analysts were citing session-leading losses for shares of restaurants, hotels, leisure, and airlines as evidence that some renewed concerns about the Delta COVID-19 variant was impacting sentiment. Spain and Portugal tightened curbs on anyone traveling from the U.K. Hong Kong banned all inbound travel from the former European island. And several countries in the Asian Pacific, including Indonesia, Thailand, and Australia, were implementing restrictions to address the variant. The risk-off bid for sovereign debt, however, was relatively mild. Ten-year yields across Europe were lower by between 0.7 bps and 1.7 bps around 7 a.m. CT. The U.K.’s 10-year yield was 2.0 bps lower. Although Monday’s U.S. calendar is quiet, investors will be anticipating key economic data scheduled for release over the remainder of the week, including Friday’s jobs report. The 10-year Treasury yield had declined 2.2 bps lower to 1.502% at 7:20 a.m. CT.
Negotiations on $1 Trillion Infrastructure Package Move Forward, but Tension Lies Ahead: President Biden reportedly committed over the weekend to several of the bipartisan negotiating group’s Republican Senators that the infrastructure deal, upon which they agreed, last Friday would not be linked to a larger reconciliation package. At issue, progressive Democrats want a significantly larger economic package than what is currently being discussed – in the ballpark of $5 trillion. They are willing to use the reconciliation process and pass such a package with no Republican support. Moderate Democrat Senator Joe Manchin (W.V.) has insisted that any economic package have bipartisan support, effectively taking any large package off the table. Speaker Pelosi, last week, said that House Democrats would only support the smaller, bipartisan package if it also meant that Democrats (specifically Sen. Manchin) were willing to go it alone to pass the larger package. Moreover, Republicans from the bipartisan negotiating group do not want to contribute to passing the smaller package if they know Democrats will immediately move to another spending package.
ICYMI – June 25, 2021 Weekly Market Recap: After hitting its lowest level since late February in overnight trading Sunday, the 10-year Treasury yield recovered Monday, grinded sideways through Thursday amid a flood of Fedspeak, and finished on a climb Friday that was credited mostly to non-economic factors. The Sunday-evening drop extended a slide from the Friday before, spurred by President Bullard lauding the Fed’s hawkish pivot that pulled a couple of rate hikes into 2023. However, investors were inundated with differing opinions on inflation’s persistence from a host of his colleagues throughout the week, leaving markets uncertain about the Fed’s future plans. Many signaled that it was too soon to say definitively, pledging to closely monitor incoming data to better inform their views. Friday’s PCE inflation report, the Fed’s preferred metric, showed core prices were up 3.4% in May from a year ago, the strongest reading since 1992. However, the annual price change reflected peak base effects and the details showed continued volatility in pandemic-effected categories. As a result, the report is unlikely to settle the transitory inflation debate. Survey measures showed activity in the U.S. and Europe remained brisk in June amid economic reopening but also that supply constraints were limiting activity. Data showed pricing and affordability concerns continued to weigh on home sales and jobless claims disappointed again. Unrelated to the economic data, a bipartisan infrastructure plan earned the White House’s blessing but will face extreme difficulties in becoming law amid a divided Congress. Amid the weekly developments, the major equity indexes saw strong gains with the S&P 500 and Nasdaq setting new records. The 2-year Treasury yield inched up to its highest level since March 2020 while the 10-year yield added 8.6 bps to 1.52%, the largest weekly rise since March. Click here to view the full recap.
CORONAVIRUS UPDATE Vining Sparks Coronavirus Chartbook