US domestic spending plans inch forward in Congress

• The US House of Representatives has moved President Joe Biden’s economic agenda forward as it approved the framework for his USD 3.5tn domestic spending plan and its investment in social needs such as education and childcare. House speaker Nancy Pelosi used an indirect vote to get the budget resolution passed after moderates and progressives within the Democratic Party failed to agree on how to move forward with both the budget resolution and the bi-partisan infrastructure bill. The vote was passed 220-212, and paves the way for the Biden administration to use the reconciliation process in order to pass his spending plan without the risk of it being derailed by a Republican filibuster. Pelosi aims to get both the infrastructure bill and the budget reconciliation bill approved by Congress September 27^th.
• New home sales in the US increased 1% m/m in July, the first increase since March. More inventory and robust demand help drive the growth in sales. Only 10% of the new homes sold in July were completed properties, as building material shortages delay completions.
• The Richmond Fed manufacturing index fell sharply in August to 9, well below the consensus forecast of 24. The survey covers the mid-Atlantic region including the Carolinas, DC, Maryland, Virginia and West Virginia.  New orders slowed sharply from 25 in July to just 5 in August.  Vendor lead time remained very high and prices paid grew 11% annualized.  The employment index also declined sharply from July.
• German Q2 GDP was revised slightly higher to 1.6% q/q and 9.8% y/y (previously 1.5% q/q and 9.6% y/y). The main driver was a sharp upward revision to government spending to 1.8% q/q from private consumption was revised slightly lower from the initial estimate to a still strong 3.2% q/q. The German economy is expected to recover to pre-Covid levels in Q3 21, but supply chain disruptions and shortages are headwinds to faster growth.
• The UAE is considering announcing a net-zero emissions target, although it’s not clear if the announcement will be made before the COP26 climate talks later this year. The UAE has already announced that it will cut greenhouse gas emissions by 25% over 10 years, but is looking at how it could get to zero emissions in the future. If the UAE does announce a net-zero emissions target, it would be the first major OPEC producer to do so.  

Today’s Economic Data and Events

12:00 German IFO business climate index (Aug) forecast 100.4 prev. 100.8

16:30 US durable goods orders (Jul) forecast -0.3% m/m prev. 0.9%

Fixed Income

• Yields on 10-yr USTs rose by 4.2bps yesterday, the biggest rise since August 6, to close at 1.2935%. The 2-yr dropped -0.2bps to 0.2223%. Bloomberg has reported that foreign purchases of USTs have spiked as they accounted for 38% of the recent 10-yr auction, the most in a decade.
• Hungary’s central bank hiked its benchmark interest rate to 1.5% yesterday, from 1.2% previously. This was in line with expectations as the bank has been one of the global forerunners in post-pandemic tightening, with yesterday’s move the third consecutive hike. The bank also signalled tapering of its asset purchase programme and gave hawkish signals with regards its future rates decisions. The bank is trying to control inflation which has been ticking up in Hungary.
• Egypt’s Ministry of Finance has announced plans to issue a sovereign sukuk in the second half of the current fiscal year, ending in June 2022. Laws regarding the issuance of sukuk are set to be finalised over the next several months, and a state-owned entity will be established to manage this issuance. The size and timing of the planned bond is yet to be determined.

FX

• The dollar was little moved against the majors yesterday, with markets waiting to see the outcome of the virtual Jackson Hole symposium, and what it might mean for tapering plans. The DXY lost -0.1% against its basket to 92.893 yesterday but is trading back up by 0.1% this morning.
• JPY moved just 0.03% yesterday from 109.70 to 109.73, while GBP added 0.07% to 1.3729 and EUR 0.09% to 1.1756.
• Commodity currencies were once again the major gainers against the dollar yesterday as worries about the Chinese recovery and demand for commodities waned. Following on from its 1.1% gain on Monday the AUD added a further 0.5% against the greenback to hit 0.7244, though this remains some way below levels seen even at the start of August. A similar story is playing out in New Zealand as the NZD appreciated another 0.8% to 0.6947.

Equities

• Asian equity markets started the day off on a positive footing yesterday, continuing the recovery that began on Monday. The Hang Seng was a notable gainer with a 2.5% rise, but the recovery was fairly broad based across Asian markets, with the KOSPI gaining 1.6%, the Shanghai Composite 1.1% and the Nikkei 0.9%. India’s Sensex gained 0.7% for a new record close.
• The moves were far less pronounced in Europe, as the STOXX 600 closed flat. Performances were mixed amongst the major European indices as the CAC lost -0.3% while the DAX rose by the same amount. The FTSE 100 added 0.2%.
• Wall Street has shrugged off the negative sentiment seen last week over the past several days, and the S&P 500 and the NASDAQ both hit new record closes yesterday, rising by 0.2% and 0.5% respectively. The Dow Jones added 0.1% but remains off the levels seen prior to the recent dip.

Commodities

• Oil prices have continued to rise as economic recovery fears have abated, and Brent futures are holding steady above USD 70/b this morning at USD 70.9/b, even as they have lost -0.2% in early morning trading. The benchmark added 3.4% yesterday on top of the 5.5% gain seen on Monday, leading to a Tuesday close of USD 71.1/b, back at the levels seen prior to last week’s collapse.
• It was a similar story for WTI prices which climbed 1.9% yesterday following Monday’s 5.3%, to a close of USD 67.5/b. The weekly API report was supportive of prices as it stated that US crude stockpiles declined by 1.6mn last week.
• The improvement in sentiment with regards China’s economy has also boosted industrial metals in recent days. Copper 3m forwards rose 1.1% yesterday after a 2.6% gain on Monday, while iron ore added 2.3% yesterday.

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