Infrastructure Compromise, Europe Recovers, Bitcoin - What's Moving Markets

© Reuters.

 By Peter Nurse

Investing.com -- Compromise on Capitol Hill over infrastructure spending, a recovering European economy, Bitcoin still in the spotlight and crude points higher still amid second-half demand recovery optimism. Here's what's moving markets on Friday, June 11th.

1. Infrastructure compromise

It seems the concept of compromise is still alive following the news late Thursday that a bipartisan group of 10 U.S. senators had reached agreement on a framework for a proposed infrastructure spending bill.

The group of senators, which includes a mix of Democrats and Republicans, agreed on a bill that would cost $974 billion over five years and $1.2 trillion over eight years, and includes $579 billion in new spending, according to Reuters, and would be fully paid for and not include tax increases.

The two sides have been at odds after President Joe Biden Biden, a Democrat, proposed a sweeping $1.7 trillion package in Congress to revamp roads and bridges and tackle such other issues as education and home healthcare, with Republicans baulking at the cost and the tax increases suggested to fund it.

It remains to be seen whether this framework goes anywhere, but such a proposal is a welcome reminder that the two sides can actually work together given the somewhat fractious nature of U.S. politics these days.

After all, a U.S. House committee early on Thursday voted to authorize $547 billion in additional spending over five years on surface transportation, a plan that would mostly go toward fixing existing U.S. roads and bridges and increase funding for passenger rail and transit.

2. Stocks seen largely flat; Michigan sentiment due

U.S. stocks are seen opening largely flat Friday, around record levels, as investors shrugged off higher inflation data while the economic recovery continued.

By 6:30 AM ET, Dow Jones futures were up 35 points, or 0.1%, S&P 500 futures were less than 0.1% higher, while Nasdaq 100 futures fell by less than 0.1%.

The three major indices closed higher Thursday, with the broad-based S&P 500 ending 0.5% higher, hitting a new record during regular trading, the blue-chip Dow Jones Industrial Average gained 0.1% and the tech-heavy Nasdaq Composite closed 0.8% higher.

These gains occurred despite U.S. consumer prices rising 5% year-on-year in May, the biggest jump in nearly 13 years. Although this was a larger jump than expected, the reaction was relatively muted as the index included hefty contributions from short-term rises in airline ticket prices and used cars, supporting Federal Reserve Chair Jerome Powell's repeated assertion that higher inflation will be transitory.

At the same time the recovery in the labor market continued as the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

Friday's economic data slate is largely confined to the University of Michigan consumer sentiment reading, at 10 AM ET (1400 GMT). The initial June print is expected to come in at 84.2, an improvement from May’s 82.9. 

In corporate news, the so-called meme stocks are likely to remain in the spotlight Friday after they all ran into something of a wall during the previous session.

AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME) and Clover Health (NASDAQ:CLOV) all suffered double-digit losses on Thursday, pulling back from their recent explosive rallies, and potentially could actually post losses for the week.

Chewy (NYSE:CHWY) could also be in focus after the pet-product retailer reported a surprise first-quarter profit, but also warned of labor shortages and supply disruptions.

3. Europe recovering

It's not only the U.S. economy which is showing signs of a recovery from the hardships imposed by the Covid-19 pandemic, the numbers in Europe are also improving.

Britain's recovery sped up in April as lockdown measures eased, with economic output rising by 2.3% month-on-month in April, marking the fastest growth since July. The gain left output just 3.7% below its level in February last year before the pandemic struck.

Prime Minister Boris Johnson wants to fully lift lockdown restrictions in England on June 21, but this could be delayed as the Delta variant of Covid-19 first detected in India is spreading fast.

German output is also rebounding from its pandemic-induced slump, with the Bundesbank Friday raising its growth and inflation forecasts for this year and the next.

The country’s central bank now expects the German economy, the largest in Europe, to reach pre-pandemic levels as soon as next quarter, growing by 3.7% this year, 5.2% next year and 1.7% in 2023.

The German central bank also raised its forecasts for inflation for this year and the next, but played down the significance of the surge, blaming it mainly on energy prices and tax effects.

At the same time, the European Central Bank kept its bond-buying at elevated levels at Thursday’s meeting, maintaining a generous flow of stimulus to sustain the still nascent recovery.

Maybe this improved outlook was behind the massive inflow earlier this week into one of BlackRock’s funds tracking European markets.

The iShares MSCI Eurozone ETF lured about $1.1 billion of new money on Monday (NASDAQ:MNDY), boosting its assets to $8.1 billion, according to data compiled by Bloomberg. 

“We’re starting to see numbers that are greater than expected and outlooks that are more bullish than expected in Europe,” said Greg Bassuk, chief executive officer at AXS Investments, in a Bloomberg report. “We’ve been urging investors to get out in front of that.”

4. Bitcoin classified by Basel

Bitcoin, the world’s largest cryptocurrency by market capitalization, remains a hot topic of conversation following the decision of the Basel Committee on Banking Supervision to classify the digital currency as a very risky asset.

The committee, basically the regulator for international banking, proposed that a 1,250% risk weight be applied to a bank’s exposure to Bitcoin and certain other cryptocurrencies.  

The ruling could be seen as a double-edged sword, as although it brought cryptocurrencies further into the mainstream financial world, it also made them extremely costly for banks to hold on their balance sheets, potentially delaying a wider adoption.

Bitcoin received a boost Thursday with the decision by El Salvador to adopt the digital currency as legal tender, the first country to do so. Yet doubts about this move have already emerged, after the International Monetary Fund said the move may raise legal and financial concerns.

An IMF team is set to meet with President Nayib Bukele later Friday, IMF spokesperson Gerry Rice said, after the agency approved emergency funds related to the pandemic last year. 

At 6:30 AM ET, Bitcoin was largely unchanged at $36,816.00, struggling to break out of the $30,000 to $40,000 range that’s been in place since a collapse from a record of almost $65,000 in April. That said, there could be volatility later Friday, with a total of $565 million in Bitcoin options set to expire. 

The U.S. Securities and Exchange Commision on Thursday warned investors about the risks of Bitcoin futures trading - citing market volatility, a lack of regulation and fraud to name a few issues.

5. Crude pushes higher; IEA sees higher output

Crude oil prices edged higher Friday, set for their third weekly rise on expectations for a recovery in fuel demand as the global economy bounces back from the pandemic.

By 6:30 AM ET, U.S. crude was up 0.2% at $70.44 a barrel, after climbing Thursday to its highest close since October 2018. Brent was up 0.2% at $72.69, after closing at its highest since May 2019 on Thursday. 

Both contracts are set for weekly rises of over 1%.

The overall tone within the crude market remains positive, helped by the Organization of the Petroleum Exporting Countries sticking to its forecast that demand in 2021 would rise by 5.95 million barrels per day, up 6.6% from a year earlier.

"Overall, the recovery in global economic growth, and hence oil demand, are expected to gain momentum in the second half," OPEC said in its monthly report on Thursday.

Goldman Sachs (NYSE:GS) agrees with the positive view, with the influential U.S. investment bank expecting Brent crude prices to reach $80 per barrel this summer as vaccination rollouts boost global economic activity and demand for the commodity.

"Rising vaccination rates are leading to higher mobility in the U.S. and Europe, with global demand estimated up 1.5 mb/d (million barrels per day) in the last month to 96.5 mb/d," the bank said in a note released late on Thursday.

The globe’s top oil producers will need to boost their output in order to meet demand set to recover to pre-pandemic levels by the end of 2022, the International Energy Agency said on Friday.

"OPEC+ needs to open the taps to keep the world oil markets adequately supplied," the Paris-based energy watchdog said in its monthly report. 

"In 2022 there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day (bpd) above its July 2021-March 2022 target.”

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.