Reopening trade sends stocks to records, Inflation peak, Infrastructure deal, Euro hits a wall at 1.1975

US stocks made fresh record highs after the Fed’s preferred inflation gauge may have peaked at 3.4% and on improving expectations the economy will benefit from infrastructure spending in the fall.   The key inflation indicator for the Fed hit the highest levels since the early 1990s as the reopening of the economy was combined with the base effects of when everything shutdown last year.  The monthly PCE reading however declined and came in lower than economists’ forecasts.  Today’s inflation data was another vote of confidence for the inflation is transitory camp.

Investors are paid close attention to drops in income and spending that were greater-than-expected as the stimulus payments effect waned. The US economy is on sound footing and could keep sending stocks higher as the reopening momentum accelerates and hiring improves.   

Infrastructure

Investors embraced the Biden administration’s tentative bipartisan infrastructure bill that still has an uncertain path forward.  The goal is to get it done by August recess, but end of September or early October is probably more realistic.  The $579 billion traditional infrastructure deal will deliver investments in road construction, fixing bridges, energy grid, and broadband internet, with no gas tax or undoing of the Trump tax cuts.  The human infrastructure bill which still has a ton of debate won’t be tied to the bipartisan bill.  Tax increases will eventually happen once the second bill gets negotiated.

Euro

The euro rallied after confidence data in Europe strongly improved as the gradual opening of the economy accelerated.  The GfK’s forward looking confidence indicator rose to -0.3, the highest level since August.  The recovery across Europe is still growing and that could remain the case as policymakers show signs to refrain from premature tightening. 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya