MARKET WRAPS
Watch For:
U.S. Personal Income for May; U.S. University of Michigan Sentiment Survey final reading for June.
Opening Call:
Stock futures edged higher Friday, putting the S&P 500 on track to close out its best week in more than two months amid renewed confidence in the global economic expansion.
Stocks have bounced back, pushing the S&P 500 up 2.4% through Thursday, after stumbling when the Federal Reserve signaled a more hawkish stance on rising inflation last week. Fueling the gains, investors say, are data signaling a fresh acceleration in the world economy coupled with the prospect of additional government spending in the U.S. and Europe.
"We are still in a phase where we're seeing the activity data still accelerate," said Hani Redha, a fund manager at PineBridge Investments, pointing to surveys showing eurozone business activity is growing at the fastest pace in 15 years.
"It is natural that you'll see very mini wobbles [in stocks] from time to time," Mr. Redha added. "But the fundamental support-that things are improving and the numbers are getting better-is going to dominate that."
Adding to investors' optimism about the economy, President Biden and a group of 10 centrist senators agreed to a roughly $1 trillion infrastructure plan Thursday. With a total of $973 billion of investment over five years, the deal will make new investments in the electrical grid, transit, roads and bridges and other forms of infrastructure.
Investors will seek to glean new details on the pace of the economic recovery from data on consumer spending, due to be published at 8:30 a.m. ET. Economists expect the numbers to show spending rose in May, after a 0.5% increase in April.
Some investors worry that the speedy pace of inflation will prompt the Federal Reserve to withdraw some of the stimulus it has lavished on markets since the spring of 2020. But Fed Chairman Jerome Powell's testimony to Congress this week that he had a level of confidence that inflation will subside allayed some of those concerns.
"That also reassures the market that the Fed will not be overly hawkish in their tightening policy," said Peter van der Welle, a strategist at Robeco. At the same time, "the infrastructure deal also portrays that the fiscal thrust is still very much with us," he added.
Forex:
The dollar could rise if U.S. economic data due later in the day reinforce expectations that inflation will accelerate and the Federal Reserve will respond by tightening its policies, Commerzbank said.
Strong data would point to "continued elevated price pressure and might provide further momentum for dollar appreciation short term," Commerzbank currency analyst Esther Reichelt said.
The Fed made it clear at its last meeting that it will react to upside risks for inflation, she said.
The European Central Bank's ultra-loose policy stance means the euro will suffer the lion's share of any dollar appreciation, ING said.
"Unlike an increasing number of emerging market countries who feel the need to respond to the summer inflation spike, it seems the ECB is more than happy to position itself as not being rushed into premature tightening," ING analysts said.
That means the euro, along with the Japanese yen and Swiss franc, will be the preferred funding currencies this summer, they said.
EUR/USD should continue to consolidate, although surprisingly strong eurozone confidence indicators this week suggest the exchange rate could rise to the 1.1980/90 area in coming days, they said.
Sterling's weakness after the Bank of England's policy decision Thursday is likely to remain limited, MUFG Bank said.
The "hawkish" shift some market participants were expecting from the BOE's policy statement failed to materialize but the central bank is certainly moving in that direction, MUFG analyst Derek Halpenny said.
"The upgrades to both real GDP growth in the second quarter and inflation this year could well have implications for inflation over the medium-term that compels the Monetary Policy Committee to alter its monetary stance (taper) or guidance at the next meeting on August 5 when the Monetary Policy Report will be released with updated forecasts."
Bonds:
In bond markets, the yield on 10-year Treasury notes ticked up to 1.488% from 1.486% Thursday.
Eurozone government bond yields were trading slightly higher following better-than-expected economic data from Germany on Friday. The strong reading is reassuring, said Joerg Zeuner chief economist at the German asset manager Union Investment.
Commodities:
Oil prices edged higher as investors look ahead to next week's OPEC+ meeting. Oil producers are set to meet on Thursday next week.
Expectations are that the cartel will agree to add 500,000 barrels a day of their output, said Helge Andre Martinsen, an analyst at DNB.
"However, an increase of 0.5 million barrels a day for August is not enough to flip the oil market balance, and the oil market will stay in undersupply with oil inventories continuing to draw down," he said. Oil prices made modest gains this week amid expectations of continued tight supplies.
Copper prices rose after President Biden and a group of senators agreed to a roughly $1 trillion infrastructure plan. Three-month copper on the LME gains 0.1% to $9,469.50 a metric ton.
The red metal is heavily used in infrastructure projects and some investors are hopeful that the plan would boost demand for copper. However, there are also growing concerns that copper's high price may spur substitution toward cheaper metals such as aluminum, which can also be used in electrical wiring.
"Arguments are starting to become more widespread on the subject of substitution with an eye to the popular world of infrastructure projects, " said Malcolm Freeman, Chief Executive of brokerage Kingdom Futures.
Gold prices ticked higher ahead of U.S. price data which will be eyed by investors for clues on the inflation outlook.
The PCE core price index, the Federal Reserve's preferred gauge of inflation is due at 0830 ET. A stronger reading than expected could heighten fears that Fed officials will move faster to raise interest rates. While gold is typically considered an inflation hedge, higher interest rates would lift bond yield and weigh on gold.
"Fed officials are presenting a mixed view, but inflation worries appear to be on the rise; which is gold negative," said James Steel, chief precious metals analyst at HSBC.
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06-25-21 0613ET
