25.06.2021 - Global equities end the week in near record territory as senior leaders of the US Federal Reserve affirmed the view that they are in no hurry to tighten monetary policy and that the recent surge in inflation is transitory, resulting from pandemic-induced bottlenecks. The rate on the benchmark US 10-year Treasury note held steady this week at 1.49% while the price of a barrel of West Texas Intermediate crude oil rose $2 to $73.10. Volatility, as measured by the Cboe Volatility Index (VIX), slipped to 16 from 19.2 a week ago as fears of a shift in tone from the Fed receded.
MACRO NEWS
Fed reiterates patient approach to removing accommodation
Fed Chair Jerome Powell testified on Capitol Hill this week that the central bank sees no risk of runaway inflation. While inflation has increased notably in recent months, it is expected to drop back toward the Fed's longer run goal, Powell said. The Fed will support the economy for as long as it takes to complete its recovery, the chairman said, adding that the central bank will not raise rates preemptively because it fears the possible onset of inflation but will instead wait for actual inflation or other imbalances before tightening policy. Federal Reserve Bank of New York President John Williams said this week that while the economy is improving at a rapid clip, conditions have not progressed enough for the Fed to shift its monetary stance. "Lift off" is still way off in the future, he said. The comments helped soothe fears sparked a week ago when Fed forecasts showed that members of the rate-setting Federal Open Market Committee expected to hike rates twice in 2023, some months earlier than they had previously predicted.
Bipartisan US infrastructure deal reached
A bipartisan group of US Senators and the White House reached agreement on Thursday on an infrastructure package totaling nearly $1 trillion of spending over five years on roads, bridges, mass transit and the like. However, US President Joe Biden said he would veto the legislation if it were not accompanied by a broader social spending plan that concentrates on what his administration calls human infrastructure. The second measure is opposed by Republicans and early indications are that it may have trouble gaining the support of all 50 Democratic Senators to pass under the Senate's arcane budget reconciliation rules, which require only a simple majority to gain passage rather than the usual 60 votes.
Sales slip amid stratospheric US house pricess
The median price of an existing home in the US soared 24% from a year ago in May, helping cool demand for homes despite still low interest rates as more buyers are priced out of the market. Sales of both new and existing homes declined last month as inventories of unsold properties fell to astonishingly low levels. Houses remained on the market for only 17 days, on average, before selling, according to data from the National Association of Realtors. The median price of an existing home in the US reached $356,600 last month
Bank of England revises growth and inflation forecasts up
The Bank of England said Thursday that it now expects inflation to peak near 3%, a half-percentage point higher than it forecast just six-weeks ago. However, it also warned against premature tightening of monetary policy as it expects the inflation surge to be temporary. On the growth front, the Bank sees economic growth accelerating to a 5.5% pace in Q2, faster than its previous 4.25% forecast. Markets are pricing in several BOE hikes in 2022, well before any move from the Fed.
QUICK HITS
Downtown Sydney, Australia and the city's eastern suburbs will go into lockdown for one week to counter an outbreak of the Delta variant of COVID-19.
All banks regulated by the Fed passed their annual stress tests. This paves the way for the Fed to end temporary limits on the banks' dividend payouts and stock buybacks.
Emerging markets central banks continue to hike rates well before their developed market counterparties. This week, central banks in Mexico, Hungary and the Czech Republic all hiked rates to restrain upswings in inflation.
Fitch Ratings upgraded the United Kingdom's credit outlook from negative to stable and affirmed its long-term rating at AA-.
Purchasing managers' indices showed that the eurozone economy is expanding at its fastest pace in 15 years as vaccination levels rise and more sectors of the economy reopen. Consumer confidence is rising as well.
The US birth rate declined the most since 1973 in the nine months following the beginning of the pandemic in March 2020, according to the Centers for Disease Control and Prevention. During 2020, deaths outpaced births in half the states, the CDC reports. Slower population growth is worrisome for long-term potential growth.
The S&P 500 Index and the Nasdaq Composite both ended at record highs on Thursday.
European Central Bank President Christine Lagarde said on Friday that the eurozone economy will reach its prepandemic level in Q1 2022.
Inflation in core personal consumption expenditures, the Fed's preferred inflation measure, rose to its highest level in nearly 30 years on Friday, reaching 3.4%, well above to the central bank's 2% target.
President Biden said this week the federal government will allow municipalities to redirect COVID-19 relief funding to hire more law enforcement personnel.
The People's Bank of China urged local banks to cut payment channels for cryptocurrency-related transactions. This follows recent moves to shut down crypto mining activities.
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