US Senate approved Joe Biden’s $550 billion worth historical infrastructure plan, which will be submitted to a House vote along with a larger $3.5 trillion spending plan.
The Dow gained 0.46%, the S&P500 was flat, while Nasdaq fell on Biden’s infrastructure victory, as investors focused on the flip side of the coin: the huge infrastructure spending would boost the already-high inflationary pressures and may encourage the Federal Reserve (Fed) to dial back its massive bond purchases sooner and quicker to compensate for the massive half a trillion money that’s about to rain on the US economy.
The major event on today’s economic calendar is the US consumer price inflation report. A consensus of analyst expectations hint that the US consumer prices may be stabilizing near the 5.4% level printed last month. But we don’t rule out the possibility of a surprise soft print, as oil prices which account for more than half of the CPI rise fell near 20% during the month of July and may have eased the upside pressure on the consumer-end prices last month. Still, it’s uncertain how second-hand vehicle prices evolved, while the bottlenecks on disrupted supply chains and the global chip shortage may have kept the pressure high on consumer prices.
A CPI print in line with last month’s 5.4% should, in theory, keep the US indices on track for consolidation near the all-time highs. A softer figure will be a sigh of relief for the market and policymakers and take some of the tightening pressure off of the Fed’s shoulders – which will still remain on track for policy normalization, but with less pressure on the timeline. Yet a stronger figure will likely boost the Fed hawks and bring the expectations of bond tapering forward to ‘this fall’ as suggested by Bostic and Rosengren earlier this week.
A hawkish shift in Fed expectations could send the stock prices lower. Nasdaq could slid 3% lower towards its 50-day moving average.
How about gold?
Gold missed its chance to shine over the past months. What would’ve made gold prices shine was soaring inflation expectations and falling US yields. But investors preferred piling into the stock markets, and to the cryptocurrencies, leaving gold behind the global risk rally. Now that the US yields are preparing to rebound, and inflation expected to soften, gold will likely lose its major bullish pillars, and dive deeper. One thing that could save gold from falling more is an eventual equity selloff, a moody market, less risk appetite and the urge to liquidate the long equity positions with the fear of seeing a global market plunge triggered by either the delta contagion crisis, or the tighter Fed expectations, or a combination of both.
And finally, there are some encouraging news for oil traders. Yesterday’s API data revealed that the oil inventories in the US fell 816’000 barrels last week. The more official EIA data is due today, and a decline in oil inventories could encourage oil bulls to test the $70 mark. Yet, buyers will likely become rare above that level, with news of rising Covid cases that just started shrinking the economic activity globally.
