“Joe the Builder,” yes, we can!

Wall Street shrugged off a headline disappointment in the US Durable Goods data overnight, as US President Joe Biden secured a preliminary deal on his infrastructure package. A bipartisan group of senators presented an acceptable, but much slimmed-down infrastructure agreement to the President that will still total around USD1.2 trillion over the next eight years.

That will still pay for a lot of Bob’s to build “stuff” to move people around in the US, stay connected on the internet and keep lights and heating on. However, challenges remain with the additional USD1.8 trillion of social spending plans and proposed tax increases on the wealthy and corporations still stuck in a deep freeze. Mr Biden and Ms Pelosi expect those bills to progress along with the infrastructure as part of a greater overall package.

US equities rise despite soft durable goods

But Wall Street is never one to let the facts and reality get in the way of a good story; stock markets rose, notably the growth-heavy Dow Jones. Any company remotely associated with picks and shovels, materials and earth moving had a good day. That unwound the disappointment with a lower headline print from the US Durable Goods data, although Wall Street overlooked adjustments upward to the previous month, offsetting the undershoot in May.

Europe and the UK also helped equities recover from their taper nerves, with German IFO Business Climate and Expectations hitting multi-year highs and the Bank of England standing pat on rates and quantitative easing at their overnight policy meeting. Interestingly, although optimism has swept equity markets, where FOMO has long ruled the nest, currency, energy and precious metals remained mostly unbudged. That has very much been the story of their week, and the post-FOMC dot-plot-gate is still resonating there in a quiet data week. Asset markets ex-equities and the zombie apocalypse gnomes of the virtual space clearly have an eye on the juicier data calendar, and a new month next week, for more concrete directional clues.

In Asia today, South Korean Business Confidence rose to 98 while New Zealand’s Balance of Trade outperformed, the surplus rising to NZD 496 million. Tokyo CPI YoY for June “rose” to 0.0%, and Japan is one place we don’t have to worry about a taper tantrum. The data prints are modestly positive without setting the world on fire.

Malaysian Inflation YoY for May is expected to ease slightly to 4.70% later today. With the country in the grip of a major pandemic wave, a print closer to 5.0% may send some alarm bells ringing and weigh on local markets, with Bank Negara having little room to move. Similarly, Singapore Industrial Production YoY for May has some downside risks with a huge base-effect jump of 23.0% expected. The city-state is also grappling with Covid-19, and the risk is we could see a sub-20% print. But, once again, the impact is likely to be limited to local markets.

Tonight’s highlight will be US Personal Income and Spending and the Core PCE Price Index for May. Arguably the latter is the more important, and a MoM print above 0.70% may give Wall Street some inflation jitters once again to round out the week.

Overall, it has been a day-traders market this week across most asset classes, and I believe that will continue today. Markets will take some confidence from the bipartisan US infrastructure deal, but its effects may be transitory. The street will still be vulnerable to headlines and Fed-speak with a send-tier data calendar. With the beginning of the month heavyweight data releases due next week, some directional normality should return.

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