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Infrastructure deal underpins sentiment

Lots of positive moves in Asia following yesterdays strong performance in the U.S.

06:20 BST

The infrastructure deal looks to have given sentiment a lift and it will be worth monitoring sector ETFs for signs that markets favour cyclicals over growth going forward.

There's a way to go on negotiations, but markets don't tend to wait for the ink to dry!

Full details:

NEW SPENDING

  • Roads, bridges and other major projects: $109 billion

  • Power infrastructure, including grid authority: $73 billion

  • Passenger and freight rail: $66 billion

  • Broadband infrastructure: $65 billion

  • Water infrastructure, such as eliminating lead pipes: $55 billion

  • Public transportation: $49 billion

  • Resilience (preparing infrastructure for the impacts of climate change such as floods and other extreme weather events, and cyber attacks): $47 billion

  • Airports: $25 billion

  • Environmental remediation: $21 billion

  • Creation of an Infrastructure Financing Authority focused on clean transportation and clean energy: $20 billion

  • Ports, waterways: $16 billion

  • Safety, including grants to add bike lanes and other steps to protect vulnerable road users: $11 billion

  • Electric vehicle infrastructure, including chargers: $7.5 billion

  • Electric buses, transit: $7.5 billion

  • Western water shortage: $5 billion

But this is far from over.

“I expect that in the coming months this summer, before the fiscal year is over, that we will have voted on this bill, the infrastructure bill, as well as voted on the budget resolution. But if only one comes to me, this is the only one that comes to me, I’m not signing it. It’s in tandem,”

It's all politics so nothing's guaranteed until it's signed into law.

Stripping it down to basics, the Bipartisan deal seems to cover Republicans that want to do something but won't sign on to tax hikes and what Democrats are calling 'human infrastructure'. Progressive Dems won't sign on without those.

Moderate Democrats such as Manchin want to do something Bipartisan rather than force through a Democrat-only budget reconciliation.

By splitting this down into two bills, everyone sort of gets what they want.

Republicans can say they did their part but without being irresponsible on spending or raising taxes.

Democrats can say that they worked on a bipartisan deal but it was woefully inadequate so they had to do more.

Good Bloomberg read on this here 👇

If all goes according to plan for Biden and Senate Majority Leader Chuck Schumer, the Senate would pass a bipartisan infrastructure deal next month as well as a budget blueprint that sets up a vote later on a far larger bill with trillions in social spending paid for in large part by tax hikes on the wealthy and corporations.

The budget bill could be passed with only Democratic votes in the Senate.

 Most of August: Democrats draft the reconciliation bill during the summer recess.

September: The Senate votes to approve reconciliation bill. Then, the House takes up both the reconciliation bill and the bipartisan deal. It's possible reconciliation could slip til October.— Manu Raju (@mkraju) June 24, 2021 

So there's a 'deal', but negotiations are far from over on the wider package, and the debt ceiling still needs to be negotiated. Might as well set it at 1oo quadrizillion for all the significance it has.  

Back to markets... Who's going to hike first?

@MagnusMacro

Right hand side of the graphic shows rate projections.

  • Norway are expected to hike later this year

  • Japan are never going to hike rates again

The Fed have no idea what's going on: Comments this week show that there is a huge divergence in views.

On inflation:

St. Louis Fed President James Bullard -- and his counterparts in Atlanta and Dallas, Raphael Bostic and Robert Kaplan -- all cited the risk of persistent higher inflation in public appearances this week, arguing it would probably be appropriate to begin raising the central bank’s benchmark rate from its current near-zero level some time in 2022.

“The differences in terms of the outlook for monetary policy really depend on and reflect the differences in the outlook for inflation,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York.

Fed Governor Michelle Bowman, Cleveland Fed President Loretta Mester, Boston’s Eric Rosengren, San Francisco’s Mary Daly and Richmond’s Thomas Barkin -- offered sanguine comments on the inflation outlook in public remarks this week but declined to reveal their interest-rate projections.

My best guess is that Williams is right, and we'll be looking back in a years time laughing about the runaway inflation that fell at the second hurdle... 👇

“Supply and demand will adjust over time. That time might be a couple years. We don’t know,” Williams said. “But if that happens quicker than you’d expect, then those price increases that pushed inflation up will actually pull inflation down next year.”

On employment:

 Fed heads a long way apart on unemployment pic.twitter.com/Y5bIWSumBx— 📈 Tim 📉 (@VolaTim) June 24, 2021 

Today's core PCE data will feed into the inflation narrative.

3.1% YoY and 0.6% MoM are expected.

🗣 Williams, Rosengren, Mester, Kashkari all speaking

Bank stocks moved little in after-hours trading following the Fed's release, and Christopher Marinac, research director at Janney Montgomery Scott, said Wall Street had been expecting the news.

"A year ago the Fed saw a lot of uncertainty and really wanted the banks to have an abundance of caution," Marinac said. "It is now time to release the extra capital and let the banks go back to the new normal."

Oil looking indecisive but resilient so far.

OPEC+ to navigate next week as well as ongoing talks with Iran:

 My instinct tells me that the #ViennaTalks on restoration of #JCPOA will resume next week, i.e. no later than July 4 or-most probably- earlier. This is not for sure but highly likely. Let’s see. https://t.co/PFDxcmyyaP— Mikhail Ulyanov (@Amb_Ulyanov) June 24, 2021 

EUR/USD 1.1895-00 (565M), 1.1915-20 (500M), 1.1950-60 (1.1BLN), 1.2000 (545M), 1.2085 (540M), 1.2111 (470M)

USD/JPY 110.00 (843M), 110.25 (310M), 110.50 (834M), 111.00 (1.3BLN), 111.15 (300M)

EUR/JPY 131.66 (200M), 131.75 (200M)

GBP/USD 1.4050 (356M)

EUR/GBP 0.8500 (1.13BLN), 0.8600 (200M)

USD/CHF 0.8900 (1.0BLN), 0.9100 (600M)

EUR/CHF 1.1050 (245M)

AUD/USD 0.7500-05 (600M)

NZD/USD 0.7000 (200M)

Source: DTCC