As of noon on Friday, global equities established fresh records during the week following US infrastructure bill progress as well as a relatively tame inflation report. Treasuries continued to fluctuate as the yield on the 10-year note rose to 1.31% from 1.30% last week. The price of a barrel of West Texas Intermediate crude oil fell to $68.93 from $69.30 last week. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 15.4 from 17.0.
MACRO NEWS
US Senate passes infrastructure bill
The Senate passed a $1 trillion infrastructure package, sending the provision to improve the nation’s roads, bridges and broadband to the House for approval. The 2,700-page infrastructure bill now makes its way to the House, where it and a $3.5 billion budget resolution (focused on poverty, climate change and health care) are not likely to pass for months as Speaker Nancy Pelosi says she will not take up one plan without the other. If the House’s version of the infrastructure legislation includes material changes to the Senate’s, lawmakers from both chambers would then work together in a conference committee to reconcile their differences and produce a final bill. That bill would then return to each chamber for a vote before heading to President Joe Biden’s desk.
Fed inching closer to tapering
US Federal Reserve officials said that the US economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes. Atlanta Federal Reserve Bank President Raphael Bostic said he is eyeing the fourth quarter for the start of a bond-purchase taper but is open to an even earlier start if the job market keeps up its recent pace of improvement. Dallas Federal Reserve President Robert Kaplan said that the central bank should begin tapering its monthly purchases of Treasury bonds and mortgage-backed securities in October. Correspondingly, the US Department of Labor reported that the consumer price index rose 5.4% in July from a year earlier, in line with estimates and June’s growth. Excluding energy and food, the CPI rose by 0.3% last month, shy of economist expectations of a 0.4% increase and well below June’s rise of 0.9%. Used car prices, which rose rapidly between April and June, gained just 0.2% in July after a climb of more than 10% in the prior month.
China discusses monetary policy
China’s central bank said it would keep monetary policy flexible and appropriate to maintain stability as the pandemic persists and domestic economic recovery is uneven. In its second-quarter monetary policy implementation report, the People’s Bank of China said it would keep liquidity reasonably ample and step up support for technology innovation, small firms and the manufacturing sector. China has tightened COVID-19 measures to combat an uptick in daily cases, a move that could inhibit the country’s economic growth and impact global growth.
US job openings surged
The number of job openings in the US economy jumped to more than 10 million in June, the highest on record, the US Department of Labor Department disclosed. There were 10.1 million open jobs on the final day of June, the report said, up from 9.2 million in May. Economist polled by Dow Jones were expecting 9.1 million openings. The jump came as the quits rate increased while the layoffs and discharges rate was unchanged, reflecting increased bargaining power and employment options for workers. By industry, leisure and hospitality showed one of the highest levels of job openings at more than 1.6 million. Health care and social assistance had 1.5 million openings. After dipping slightly in May, the share of people leaving their employer rose again in June, when another 3.9 million people quit their jobs, according to the latest Job Openings and Labor Turnover Survey. The number of people who quit their jobs in June made up 69% of total separations, which also includes layoffs, firings and retirement.
Long-term unemployment endures
About 3.4 million Americans were long-term unemployed in July, a reduction of about 560,000 from the prior month, according to the Bureau of Labor Statistics. However, the figures remain elevated relative to pre-pandemic levels. About 2 out of every 5 jobless individuals are long-term unemployed, meaning they’ve been out of work at least six months. Roughly 39% of all jobless workers have been out of work for 27 weeks or longer, which is down from about 42% in June. The number of long-term unemployed remains 2.3 million higher than in February 2020.
QUICK HITS
The US Department of Labor said that producer prices posted their largest annual increase in more than a decade amid inflation pressures while the number of Americans filing claims for unemployment benefits fell again last week as the economic recovery continues to be bumpy.
The Biden administration announced it would extend the payment pause for federal student loan borrowers through January 2022. The hiatus was scheduled to expire in September, with about 90% of borrowers taking advantage of the break.
A report by the United Nation’s climate panel warns that limiting global warming to close to 1.5 degrees Celsius or even 2 degrees Celsius above pre-industrial levels “will be beyond reach” in the next two decades without immediate, rapid and large-scale reductions in greenhouse gas emissions.
People who are fully vaccinated against COVID-19 are highly protected against severe infection, hospitalization and death caused by the virus. Nevertheless, coronavirus cases among the fully vaccinated — so-called breakthrough COVID cases — are still being seen among those who have had two doses.
Mexico’s same-store retail sales (stores open a year or more) rose by 15.3% in July compared to the same month last year, the Mexican retailers’ association ANTAD said, as economic activity continues to pick up in the country after last year’s deep pandemic-induced slump.
China’s new bank loans fell more than expected in July to their lowest in nine months while broad credit growth hit a 17-month low, adding to market expectations that modest policy easing may be needed to underpin the country’s economic recovery.
Singapore’s government raised its official growth forecast for 2021 after the economy held up stronger than expected in the first half of the year as the domestic COVID-19 situation stabilizes. The Singapore economy is expected to grow between 6% and 7% this year, the trade and industry ministry said, compared with the previous official projection range of 4% to 6%.
New Consumer Price Index data points to a possible 6.2% cost-of-living adjustment (up from a 6.1% estimate last month) for US Social Security recipients for 2022, according to the Senior Citizens League. Social Security’s annual cost-of-living adjustment is calculated each year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
Mexican President Andres Manuel Lopez Obrador said that his administration could use funds disbursed by the International Monetary Fund to pay off debt, though a Bank of Mexico board member rejected the idea. Mexican Economy Minister Tatiana Clouthier said that the country’s economy could grow less than 6.3% this year due to a new wave of coronavirus infections but is expected to expand by at least 5.5%.
European shares hit record highs, recording their longest winning streak in two months on optimism of an upbeat earnings season, while a slowing increase in US inflation calmed nerves around monetary policy tapering.
The Cass Freight Index for July showed volumes of goods shipped by truck, car and rail in North America returning to pre-pandemic levels, but the cost of shipping remained elevated.
Post-Brexit trade frictions have significantly altered freight traffic between Ireland and Britain and sparked a steep rise in volumes to and from Ireland and other European Union members, the Irish Maritime Development Office detailed.
Global merger and acquisition activity has reached new highs, building on the record-breaking deal-making streak from the beginning of the year. According to Refinitiv data, the total value of pending and completed deals announced in 2021 was $3.6 trillion year-to-date, surpassing the full-year tally of $3.59 trillion in 2020. So far this year, 35,128 deals have been announced, a 24% jump over last year.
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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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