Stability and Soothing of words

Stability and soothing of words

The Noise

  • The US Senate has struck an agreement for a $1.2tn (£860bn) infrastructure bill in what could be a major victory for President Biden. The eight-year plan includes funding for roads, bridges, the power grid, public transport and the internet. The president wants to enact another, roughly $6tn spending package that he would like to pass in tandem with the infrastructure bill.
  • Senior Federal Reserve officials underlined their commitment to pursuing full employment and caution around withdrawing loose monetary policy. Some investors had feared that the Fed would raise interest rates more quickly than expected as the economic outlook improves.
  • German Chancellor Angela Merkel has warned that the emergence of the Delta variant of Covid-19 could jeopardise the lifting of restrictions over the summer. Her warning came as EU health officials said the variant would account for 90% of the bloc’s cases by late August. The Delta variant, now dominant in the UK, is thought to be 40-60% more transmissible than other strains.

The Numbers

The Nuance

Some stability returned to markets this week as central bank remarks which aimed to alleviate some of the tensions caused by last week’s Federal Reserve meeting seemed to have the desired effect. Signs that the Fed might be slowing down its bond buying programme or even beginning to discuss rate rises caused some volatility last week. Worries that faster inflation might speed up policy tightening seemed to fade following central bank remarks – the fact that rates cannot be raised without suppressing economic growth is likely to stay the Fed’s hand and as such, we continue to believe that rates will not move for now.

Biden’s tentative bipartisan deal for a US infrastructure plan was also announced this week, representing yet more government-driven economic activity funded by the Fed’s printing press. The market appears to be willing to overlook the longer term money supply concerns of these programmes and prefers to focus on the more positive news of job creation and economic growth. In response to the bill, markets showed signs of optimism that the recovery is taking hold with cyclical financial and energy companies leading gains and taking the US S&P 500 Index to another all-time high.

Quote of the Week

Matrimonial advertisement in an Indian newspaper,

We all know that dating can be a minefield and that people meet their partners in all kinds of ways. Lying about your height and hiding your less attractive habits are common but should really be tackled headon, if only not to waste anybody’s time. That’s why this matrimonial advertisement in an Indian newspaper is such a breath of fresh air, even if it did turn out to be a spoof. I’d love to know whether anybody responded!