Global equities were marginally higher in early trading this week ahead of Thursday’s widely anticipated inflation report. Economists are anticipating the report to show that headline consumer prices increased from 4.2% to 4.6% on an annualized basis. Ahead of next week’s Federal Reserve meeting, the report may provide some clarity for investors who will be looking for any insights into the future direction and timing of monetary policy. In the meantime, the accommodative stance of central banks continues to be supportive of both stocks and bonds. Bond yields are on pace to fall for the fourth week in a row, indicating that markets seem to be more receptive to the idea that inflation may in fact be transitory. Commodity prices continued to march higher this week, with WTI Crude trading north of $70 per barrel as of Wednesday. Over the last few years, lumber prices have quadrupled, oil and copper has doubled, and key agricultural commodities like corn, wheat, and soybeans are up between 50% and 75% (Federated).

In Washington, infrastructure bill negotiations between Biden and Republicans broke down yesterday, so a new deal will have to be crafted.  According to Greg Valliere, Chief Policy Strategist for AGF Investments, a new package could take weeks to iron out, and passage before the July 4 break is unlikely.  President Biden seems willing to agree on a much smaller deal, from the original $2.25 trillion down to as little as $1 trillion.  Separately, the Senate passed a bill on Tuesday to invest $250 billion in manufacturing and technology specifically to compete with China.  In each of these new spending bills, markets will be evaluating the size of the ongoing fiscal stimulus and the method of paying for the spending (if at all) for clues to the effects on the ongoing economic recovery.

 

Source: GSAM, JPM, AGF, Federated Hermes

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