The day will be a big build up to Fed Chair Powell’s testimony to Congress where some are expecting a bit of a walk back of the Hawkish stance laid out in the FOMC meeting minutes last week. Usually in a solid market, with low unemployment and rising inflation due to positive economic activity, we would see rising bond yields and a stock market appreciating to new highs. The fall in yields and rising bonds, plus a falling Dow Jones would have been a shot across the bow that the market is not quite ready and tantrums at anything, but increased stimulus are likely to happen.
The energy markets are continuing to push higher, with WTI crude now trading as high as $73 per barrel. The rising US dollar index did put a slight dent in the oil uptrend but as momentum in the dollar eased off, oil markets found support, and then rose rapidly on a weakening in the DXY. With the resilience shown in the oil markets pricing Russia is said to consider proposing an OPEC+ output hike in the next week. As they view the supply to market being in deficit to demand. News around Iran will have an effect on the prices of oil and negotiations around the nuclear deal are ongoing.
President Biden has stated that he expects the debt ceiling to be raised at the end of next month and that he is encouraged by the infrastructure deal. The idea is to get a bi-partisan deal which is being labelled “too big to fail”. Net transfers from the government to the non-government are slowing as stimulus from the Cares Act is now rolling off the books. An infrastructure bill will ensure the US economy continues to grow over the next 4-8 years but without it, the equities may find the US dollar index progress higher.
The UK has had to borrow due to the decrease in tax receipts from the disruptions caused by covid-19 lockdown measures. Public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £24.3 billion in May 2021; this was the second-highest May borrowing since monthly records began in 1993, £19.4 billion less than in May 2020.