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Biden's Budget, PCE Inflation Data, ECB Bond Buying - What's Moving Markets

EconomyMay 28, 2021 05:16AM ET
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© Reuters

By Peter Nurse

Investing.com -- President Joe Biden is set to unveil hefty federal spending in his budget, the ECB has to decide on bond buying, while the Fed’s favored inflation gauge is due. The OPEC meeting next week looms large while stocks climb on economic recovery optimism. Here's what's moving markets on Friday, May 28th.

1. Big Biden budget

President Joe Biden is set later Friday to unveil a budget that would increase federal spending to $6 trillion in the coming fiscal year, according to a report by the New York Times.

Although such a proposal would have to get through a divided Congress, where the Democrats hold only narrow majorities in the House and Senate, it would take federal spending to its highest levels since World War II. 

The president’s new spending is intended to fund major investments in both traditional infrastructure and in green technology, deemed crucial in raising America’s competitiveness globally, as well as boosting access to community college, family leave and child care.

The proposal is sure to raise opposition from fiscal hawks, worried that the massive increase in spending, tied with higher interest rates, will increase the country’s debt payments to uncomfortable levels.

But Treasury Secretary Janet Yellen told lawmakers on Thursday that Biden’s spending plan represents a “fiscally responsible” approach.

“The president’s proposal, you’ll see, will have a temporary period of spending and permanent increases that beyond the budget window will result in lower deficits and more tax revenue to support those expenditures,” Yellen said while testifying during a House Appropriations subcommittee’s virtual hearing.

2. Stocks set to push higher; Salesforce (NYSE:CRM), HP (NYSE:HPQ) in focus

U.S. stocks are set to open higher Friday, as optimism about the global economic recovery grows following strong employment data.

By 6:20 AM ET, Dow Jones futures were up 195 points, or 0.6%, at just over 34,600, S&P 500 futures were 0.4% higher and Nasdaq 100 futures climbed 0.3%.

The major indexes are all on track to close higher this week. The broad-based S&P 500 is up 1.1% so far this week, the blue-chip Dow Jones Industrial Average is up 0.8% higher, while the NASDAQ Composite has gained nearly 2%.

Earlier in Europe, the pan-European Stoxx 600 index gained 0.4%, setting a new intraday record high, as the European Commission's economic sentiment index rose to 114.5 points in May, a three-year high, from 110.5 in April.

Confidence is growing about the strength of global economic improvement, helped by first-time jobless claims in the U.S. falling to a new pandemic low, a positive indication of the health of the world’s largest economy.

Adding to the optimism are reports that the Biden administration's fiscal year 2022 budget is set to take federal spending to levels not seen since World War II. 

Salesforce (NYSE:CRM) will be in focus Friday, with its stock up 4.5% premarket, after the software company raised its full-year forecasts, following increased demand for its cloud-based software due to a pandemic-led shift to remote work.

HP (NYSE:HPQ) stock fell over 5% premarket despite the company’s better-than-expected second-quarter results, after it warned the ongoing computer chip shortage could impact their ability to meet demand for laptops this year.

3. Fed’s favorite inflation gauge

The economic data slate is pretty packed Friday, but the most closely watched release will be the Federal Reserve’s preferred gauge of inflation, the core personal consumption expenditures price index, at 8:30 AM ET (1230 GMT).

Economists expect core PCE to have jumped 2.9% year-on-year in April, way above the Fed’s nominal target of 2%, compared with a year-on-year rise of 1.8% a month earlier.

Fed officials have been at pains to make it clear that they are prepared to look through a period of high inflation as they see it as being temporary - this was particularly the case after the latest consumer price index showed a year-on-year jump of 4.2%.

However, a hefty rise in the core PCE index would be sure to cause some discomfort to the U.S. policymakers, potentially accelerating the time frame before the central bank chooses to act.

In other economic data, personal income is set to slide 14.3% as stimulus checks disappear, and personal spending is expected to gain 0.5%. The Michigan consumer sentiment index is also due, and is expected to slip to 82.8 in May.

4. ECB bond buying program

The Federal Reserve is coming under increasing pressure to give the market more guidance as to when it plans to start tapering back its bond-buying program. However, in Europe, these voices are much more quiet.

In fact, the European Central Bank is increasingly expected by market participants to extend the elevated pace of its emergency bond-buying at its next meeting on June 10, despite a likely economic rebound.

These purchases were ramped up in March when the Eurozone was in a double-dip recession and global borrowing costs were climbing. 

Europe has started to grow again as ramped-up vaccinations programs have led to businesses reopening. That said, borrowing costs are still on the rise, with German 10-year yields climbing to a two-year high last week, and there has been a growing chorus of policymakers calling for a steady flow of stimulus, fearing that the recovery might otherwise falter.

European Central Bank board member Isabel Schnabel, the head of the ECB’s market operations, has taken a more benign view on the rise in yields, saying that should be expected as the economy recovers and financing conditions remain favorable.

“We continue to think the ECB will decide in favour of continuing the current pace of asset purchases at the June meeting,” said analysts at Nordea, in a note, “but expect the net purchases under PEPP to end in March 2022, as we judge it will be increasingly difficult to argue at that point that the coronavirus crisis phase would still be ongoing.”

5. OPEC meeting looms large

Crude oil prices were marginally higher Friday, with traders wary of picking sides ahead of a meeting of top producers early next week and with the return of Iranian exports still a distinct possibility.

By 6:20 AM ET, U.S. crude was up 0.5% at $67.15 a barrel, while Brent was up 0.4% at $69.47. The contracts are both on track to post weekly gains of 5% to 6%.

Iran and global powers are continuing to negotiate in Vienna over steps that Tehran must take regarding its nuclear activities to return to full compliance with the 2015 nuclear pact the Persian Gulf nation signed with world powers.

If agreement can be reached and sanctions on its oil exports are lifted, primarily by the U.S., Iran could add around 1 million barrels a day of crude to the market.

This is something the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, have to take into account when they get together on Tuesday.

That said, most experts expect the grouping to stick with the existing pace of gradually easing oil supply curbs, ratifying the 840,000 barrels a day increase scheduled for July.

Ahead of the meeting, oil is on course for another monthly gain in May, the fourth of five this year, as investors wager that progress in combating the Covid-19 pandemic, particularly in the U.S. and Europe, will spur energy consumption. 

Later Friday, traders will focus on the latest weekly update from Baker Hughes of the number of oil rigs, while the CFTC will release its weekly commitments of traders report.

Biden's Budget, PCE Inflation Data, ECB Bond Buying - What's Moving Markets
 

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Comments (19)
Henry Anderson
Henry Anderson May 28, 2021 12:41PM ET
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Bitcoin uses Secure Hashing Algorithm (SHA) -256, a variant of the SHA-2 (Secure Hash Algorithm 2), developed by the National Security Agency (NSA). "It seemed doubtful that Nakamoto was even Japanese. His English had the flawless, idiomatic ring of a native speaker," "It was suggested, Nakamoto wasn't one man but a mysterious group with an inscrutable purpose.(Wired.com)" It's certainly no coincidence that Bitcoin was created on January 2009, following 2008 economic crisis. It's very plausible that NSA or (at least a group from NSA) created Bitcoin to maintain the reserve currency status of the US Dollar and prevent any future debt crisis.
Henry Anderson
Henry Anderson May 28, 2021 12:41PM ET
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Also, the United States and Tesla (Elon Musk) are indirectly promoting Bitcoin. Elon gets away with obvious pump-and-dump schemes involving TV Shows and Twitter while the SEC forced Michael Burry to delete his Twitter account. Joe Biden talks all day about green energy, but the American government doesn't even try to regulate or ban cryptocurrencies despite their environmental concerns. In other words, Elon Musk and the American Government seem to be cooperating to promote Bitcoin to prevent the Fall of the US dollar. They are advocating Bitcoin because rising Gold, Euro, and Pound will threaten the reserve currency status of the US Dollar. (Most of Bitcoin is traded in USD, whereas Dollar recently lost to Euro as Payment Currency-SWIFT) Strangely, Elon is the Richest Man in the world, although all of his companies are not profitable. He could not have done it without the help of the American government.
Vik Raj
Vik Raj May 28, 2021 11:54AM ET
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inflation? no worries, just stimulated spending
Marthinus De Beer
CrystalEyelBall May 28, 2021 11:16AM ET
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Biden talk 💩
allan alkaline young offset
allan alkaline young offset May 28, 2021 10:31AM ET
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kweliii
Keng He
Keng He May 28, 2021 10:10AM ET
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biden is *******
Elliott Mahana
Elliott Mahana May 28, 2021 9:47AM ET
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https://vm.tiktok.com/ZMevEuMjp/This is what Biden wants. Is this really what the amercan people want? Is this still a place of freedom????
Mart Bab
Rubberduck1973 May 28, 2021 9:47AM ET
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So Americans don’t want infrastructure  ?
Steve Lora
Steve Lora May 28, 2021 9:01AM ET
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Bidens MRI needs to be released. What are they hiding
Steve Lora
Steve Lora May 28, 2021 9:00AM ET
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Biden needs to release his medal records
Touhid Ahmed
Touhid Ahmed May 28, 2021 8:54AM ET
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indian market nifty 50 ll touch 16000
Phil Ht
Phil Ht May 28, 2021 8:07AM ET
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Clinate scam is psychotic
May 28, 2021 8:07AM ET
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Tell that to the Colorado river
Bill Melton
Bill Melton May 28, 2021 8:07AM ET
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Tell that to the cows. SMH
Elliott Mahana
Elliott Mahana May 28, 2021 7:34AM ET
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Biden is clearly senile and a threat to our democracy and has been stealing money from the US through his son Hunter which is about to be proved thru Hunters computer which the NY post reported and fox news fact checked.
Paul Richard
Paul Richard May 28, 2021 7:34AM ET
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Haters going to hate!
Thomas Rossi
Thomas Rossi May 28, 2021 7:34AM ET
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#thebiglie
May 28, 2021 7:34AM ET
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And who in politics isn’t a crook?
May 28, 2021 7:34AM ET
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Emilia Paragon can you still buy a gun?
Mart Bab
Rubberduck1973 May 28, 2021 7:34AM ET
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You are clearly senile and want to sound interesting
Elliott Mahana
Elliott Mahana May 28, 2021 7:31AM ET
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Bidens and his democratic party are deliberately destroying any sense of a economic freedom and is making it seem more like socialism than democracy. The world is much less safe the ever before. If a waring nation like iran gets nuclear power there maybe ww3.
Natalie Evans
Natalie Evans May 28, 2021 7:31AM ET
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There we go again 🤣
May 28, 2021 7:31AM ET
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Tell us what SHOULD happen…..
me ish
me ish May 28, 2021 7:31AM ET
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hilarious - like the world has changed that much since Biden took office - and not pushing Iran to total economic collapse is far and letting them join the global economy is far less likely to encourage them to develop nuclear weapons. The facts are that Russia and China who support Iran already have enough nuclear weapons to wipe out US ten times over - Iran is a side issue!
Mike Wellons
Mike Wellons May 28, 2021 7:31AM ET
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Trump admin removed the pause on Iran's nuclear development. Obama administration implemented the pause. Biden administration is trying to reimplement the pause. Astounds me that you completely misunderstand this this
Emil Miclea
Emil Miclea May 28, 2021 6:46AM ET
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Role out ! Role out !!
Ronald Warren
Ronald Warren May 28, 2021 6:20AM ET
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Inflation slams the federal government. "Nothing To See Here!" Just ask Powell. My trade is construction and the inflation in building materials is ludicrous. Everything you touch at the lumberyard is higher by 25 to 500%. The only way to keep the industry going in new construction is to keep raising housing costs. Remodeling has to fade soon. Those on middle class budgets simply can't afford it. I'm still working and booked through the end of the year, but honestly don't know how.
Show previous replies (2)
May 28, 2021 6:20AM ET
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Matt Kay Americans will start passing houses down through generations like Asia notably Japan. My friend lives in his 260 year old family home.
May 28, 2021 6:20AM ET
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How will my nine grand children afford a house on a middle class income? Going to be a challenge.
Matt Kay
Matt Kay May 28, 2021 6:20AM ET
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Please note that major city property taxes are as high as 1bedroom annual apartment rent. So why would anyone choose to pay 300k for a house that you have to pay 10k annually just to own? This country is going to be rich man's paradise. What will the rest of us do?
Tyrone Jackson
Tyrone Jackson May 28, 2021 6:20AM ET
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You guys are all right about everything. This is Biden NWO America. The rich will get richer and the poor democratic’s that voted for him will get poorer. In four years the inner cities will be worse than they were in the 70’s. Lol, They never learn. Better exchange your fiat for gold, silver, platinum.
Ronald Warren
Ronald Warren May 28, 2021 6:20AM ET
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70 % of the federal budget is entitlement spending. I guess the FED prints mega money and we live on assistance and public housing.
sanjay kumar nayak
sanjay kumar nayak May 28, 2021 6:17AM ET
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then USD strong?
Oliver Hinds
Oliver Hinds May 28, 2021 5:54AM ET
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One step closer to mass panic in the markets, excellent...
May 28, 2021 5:54AM ET
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We’ve been saying this for 15 years now.
Roger Pruzansky
Roger Pruzansky May 28, 2021 5:52AM ET
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ya one of the few times mainstream readings are actually accurate
Gorgovan Gabriel
Gorgovan Gabriel May 28, 2021 5:49AM ET
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super
Guillermo Reglá
Guillermo Reglá May 28, 2021 5:42AM ET
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Great insight
 
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