Dissecting infrastructure, bitcoin steady

Infrastructure Dissection

Maybe Wall Street is just spoiled with the near USD5 trillion that got pumped into the economy throughout the COVID-19 crisis, but Biden’s USD2.25 trillion does not seem a lot when you spread it across eight years.  Lawmakers can agree upon investing in transportation infrastructure, cyber defenses, domestic manufacturing, and 5-G cellular networks, but the proposed tax increases will make this plan eventually go down to budget reconciliation.

International treatment of corporations is changing and if the Biden administration’s plan passes in its current form, multi-nationals will feel some pain.  Republicans do not support the tax portion of the plan that will raise the corporate rate from 21% to 28% and set a 21% tax on global earnings.

Negotiations will go on for months and expectations are for a revised proposal to work its way through the House in the summer.  Before we start planning for something to get done in the fall, the Biden administration still has to deliver the tax hike proposals in the coming weeks.  Best case scenario is that the core components of “Build Back Better” get passed through budget reconciliation at the end of the year.

FX

Biden’s infrastructure pitch will eventually make the big winners at the end of the year be Mexican and Canadian currencies.  For now FX is all about the direction of the Treasury yields dictating the dollar’s trend.  The bond market rally appears to be tentatively dragging the dollar lower today.  A lackluster jobless claim report didn’t move the needle as the consensus remains that the US economy will run hot very soon, keeping the dollar supported until the outlook improves for Europe.

Bitcoin

Bitcoin is little changed as Wall Street investment banks are closer to following through on their pledge to allow their institutional funds exposure to bitcoin in the form of cash-settled futures or Grayscale’s bitcoin trust.  Goldman Sachs and Morgan Stanley are the main drivers behind the latest rally in bitcoin.

The long weekend will prove interesting for bitcoin as traders will wait to see if fresh record highs are made once again during an illiquid time.  Many institutional traders investments don’t have direct access to bitcoin and are unable to take advantage of the moves on Saturday or early Sunday.

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