A generally decent week for the equity markets as the earnings data came in strong and most economic reports were solid. The market hasn’t focused on the deteriorating COVID news for some time now. The U.K. is viewed as something of a bellwether, and even there case counts have ticked higher again. So far the key has been that mortality rates haven’t moved significantly higher, raising the hope that vaccines have broken the link between case counts and hospitalizations/death.
The market was much more focused on the inflation numbers. As expected, inflation came in hot, but the key metric was the slowdown in the monthly growth rate.
Used car prices have stopped their meteoric rise and some raw commodities like lumber (chart below) have come off the boil.
The only other major economic news concerned the labor market. The number of job openings continues to soar. Talk to almost anyone in the retail/service sector and you hear the same story – finding workers is almost impossible.
Turning to politics, the Senate voted 69-30 on Tuesday to pass the $1.2 trillion bipartisan infrastructure package. The new bill would deliver hundreds of billions of dollars for roads, bridges, waterways and other “hard infrastructure” items, but there is ‘only’ about $550bn of new spending in the new bill, as you can see below.
The bill faces an uphill battle in the House, where members were largely left out of the negotiating process. But the large margin of votes for the bill — 19 Senate Republicans voted in favor, including Senate Minority Leader Mitch McConnell, could make it harder for House progressives to dismiss outright.
Now the Senate moves on to consider the Democrats’ $3.5 trillion budget resolution. The current thinking is that this larger package will lay the groundwork for a reconciliation bill that can pass the Senate with only 51 votes and therefore only Democratic support (assuming all Democratic senators support it).
The posturing ahead of negotiations this fall should be entertaining, to say the least. But there is little opposition in the country to more spending. As you can see below, surveys indicate little resistance to higher deficits or a larger government.
We may not see a final plan that totals over $3tn, but the odds certainly favor another multi trillion-dollar bill by the end of the year, for better or worse.
Charts We Found Interesting
1. Case counts continue to grow in the U.S.
2. Florida’s hospitalization rates are soaring.
3. Data from the Kaiser Family Foundation on the prevalence of breakthrough cases.
4. This Sunday marks 50 years since President Nixon suspended the convertibility of the dollar into gold, thus beginning the era of fiat money. How much longer can the debt super-cycle run?
5. Two key charts from the UN’s Intergovernmental Panel on Climate Change report. The report concluded “unequivocally” that humans have “warmed the atmosphere, ocean and land,” and that in all likelihood, the past decade was the warmest in at least 125,000 years.
6. College tuition inflation is no more.
7. Adding another character to your password can make a huge difference. Hands up if you have the same password for everything!!
8. Words to live by – ‘never let a crisis go to waste.’
Have a good weekend.
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