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LGT Navigator: Biden reaches first agreement in debate over US infrastructure plan

June 25, 2021

A bipartisan committee of Democrats and Republicans has agreed on a multi-billion infrastructure programme. Strong US economic data fuel the rally on Wall Street, and the Bank of England maintains its expansionary monetary policy despite rising inflation. 

US Capitol

On Wall Street, the recovery rally continued on Thursday and both the S&P 500 (+0.6%) and the Nasdaq Composite (+0.7%) closed at new highs. The Dow Jones advanced almost +1% but remained below the highs of early May. Positive economic data and statements by US President Joe Biden, who said that a bipartisan committee of Democrats and Republicans had agreed on an infrastructure plan, provided a good mood. However, the next hurdle is already looming, as the multi-billion investment programme must now be approved by US Congress. Spending of around USD 1 trillion will be discussed, which is to be invested in the renewal of the electricity grid, transit, roads, bridges and other infrastructure projects over the coming years.

Among the winners on the stock markets on Thursday were American banks, which passed the annual stress test successfully. The US Federal Reserve declared that the financial institutions are well prepared to cope with a severe recession. 

Today, markets will focus on the release of the latest US inflation data. Analysts expect consumer prices to have risen by +3.4% year-on-year in May. 

The US economy is booming

The US economy has started the year with a lot of momentum and is recovering rapidly from the corona crisis. Gross domestic product grew at an annualized rate of +6.4% in the first quarter, according to the US Department of Commerce. This means that growth has accelerated compared to the final quarter of 2020 (+4.3%). The boom is expected to continue from April to June and economists anticipate GDP to grow by +10% on an annualized basis. 

The recovery on the US labour market, on the other hand, has stalled. Last week, 411’000 Americans registered as unemployed for the first time, 7’000 fewer than in the previous week. Analysts had expected a much stronger decline in initial claims to 380’000. The continuous improvement of the employment situation was nevertheless positively received.

Bank of England in a quandary

The Bank of England (BoE) is sticking to its expansionary monetary policy despite rising consumer prices. Thus, it will leave the key interest rate at 0.1%, as it announced on Thursday after the interest rate meeting. The bond-buying programme with a total volume of GBP 895 billion will also be continued unchanged. However, this decision was not unanimous: in the nine-member committee, Chief Economist Andy Haldane voted for the reduction of the purchase volume for the second time. The BoE expects that the inflation rate could rise to over 3% in the short-term - however, it considers any overshooting of inflation above the central bank's target of 2% to be temporary. This assessment is shared by the US Federal Reserve and the European Central Bank (ECB), which are also confronted with rising inflation. However, the BoE is currently in a particularly uncomfortable position: on the one hand, prices are rising due to the economic recovery after the corona shock and the rise in the price of commodities. At the same time, the pandemic situation in the United Kingdom has worsened again, as the particularly contagious delta variant of the virus is causing rising new infections. A tightening of monetary policy in this uncertain environment therefore seems rather unlikely.

Business climate in Germany brightens

Sentiment in the German economy improved significantly in June and is as good as it last was in November 2018, with the business climate index climbing 2.6 points to 101.8, the Munich-based Ifo Institute reported on Thursday. Analysts had only expected an increase to 100.7 points. About 9’000 companies took part in the institute's monthly survey. A look at the figures shows that the participants assess both the current business situation and the outlook as better. In the wake of the relaxed corona protection measures, the mood in the service sector in particular has brightened noticeably. But the manufacturing sector also remains optimistic, although increasing bottlenecks in materials and input products are dampening confidence that the industry will be able to meet the booming demand.


Economic Indicators June 25

MEZ Country Indicator Last period
08:00 DE GfK consumer sentiment (July) -7.0
14:30 US PCE price index (y/y, May) +3.6%
16:00 US Uni Michigan consumer confidence (June) 82.9


Earnings Calender June 30

Country Company Period
US Micron Technology Q3


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