Mr. Biden’s Aid/Relief/Stimulus’ and the Global Financial Markets

#aid/relief/stimulus #Biden #financial #markets


Investors have been ‘jolted‘ into overhauling their portfolios in anticipation of the promised Biden aid/relief/stimulus $1.9-T plan.

Prices of commodities used in infrastructure projects, like copper, and shares in machinery manufacturers such as John Deere (NYSE:DE) and Caterpillar (NYSE:CAT) have advanced.

Global crude oil (OIL) prices tapped $55bbl for the 1st time since The China Virus hammered markets. And lower-rated US state and local debt has rallied on the promise of more federal support.

The most important impact may actually be in the government bond markets that form the basis for other asset prices around the world.

Shayne and I now expect lots of extra debt issuance, plus higher inflation, putting pressure on the Fed to wind down its bond buying program and potentially increase interest rates earlier and higher than expected.

The benchmark 10-yr and 30-yr government bond prices have dropped YTD, pushing yields to around their highest marks in about 10 months.

Lots of assets have been built on the prospects of ultra low interest rates for in the future In terms of financial risks, we think those bond prices to be the Big 1’s.

The Biden promise of more spending on the heels of a $900-B spending bill passed by Congress in December has set the stage for a rise in inflation and higher commodities prices and a lower USD.

Demand for hedges against rising prices has been very strong in here, with US funds that buy Treasury inflation-linked securities, or Tips, attracting almost $1.5-B of net inflows in the wk ended last Wednesday, marking the 15th wk running where more money entered those funds than left them.

The Big Q now is: How how much fuel the Democrats will add to the US economy, at a time where monetary policy remains extra ultra-loose.

The Big A: Looks like a lot.

Right now, the global economies lead by the US and China, are seeing and early cycle dynamics characterized by rising growth, rising corporate earnings, rising prices, aka inflation. That will continue as long as the central bank stimulus keeps coming.

Have a healthy day, Keep the Faith!