Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Global stock markets are nudging higher as investors brace for president Joe Biden to propose a $6tn spending package when he unveils his first budget later today.
Biden is expected to propose record federal spending of $6tn in the 2022 financial year, starting in October, rising to $8.2 trillion by 2031, according to a report in the New York Times.
Citing documents it had obtained, the NYT said the Democratic president planned to pay for his agenda through increased taxes on corporations and high earners, with budget deficits expected to decrease in the 2030s.
The budget will show how Biden intends to deliver on his sweeping domestic agenda. That includes the American Jobs Plan to build new transport, water, energy and broadband infrastructure, modernise homes, and boost manufacturing, and the American Families Plan to invest more in childcare and education.
The budget will also outline how the White House see inflation, employment, and economic growth panning out. The budget deficit is expected to hit $1.8tn in 2022.
But the documents will also be aspirational. Biden’s Democrats hold only narrow majorities in the House and Senate, and the Republicans are pushing for a smaller infrastructure package instead. So a pitched battle lies ahead.
As Reuters explains:
Republicans have criticized the president for seeking trillions in new spending, setting the stage for pitched battles over his priorities.
“It just seems like the trillions keep on coming,” Republican U.S. Senator Shelley Moore Capito, who is leading a group of colleagues pursuing a counteroffer to Biden’s current $1.7 trillion infrastructure proposal.
Yesterday, president Biden told an event in Cleveland that it’s the right time to invest in the economic recovery:
“Now is the time to build (upon) the foundation that we’ve laid to make bold investments in our families and our communities and our nation.
We know from history that these kinds of investments raise both the floor and the ceiling over the economy for everybody.”
Hailing the recent progress against Covid-19, Biden added:
“We’ve turned the tide on the once-in-a-century pandemic.
“And now we’re faced with a question: what kind of economy are we going to build for tomorrow? What are we going to do? I believe this is our moment to rebuild an economy from the bottom up and the middle out.”
Asia-Pacific equity markets have been boosted overnight, with Japan’s Nikkei jumping 2.1% and South Korea’s Kospi gaining 0.8%.
Investors anticipate that this surge in US spending will feed through to the global economy, as Jeffrey Halley, senior market analyst at OANDA, explains:
President Biden’s Preliminary Budget is envisaging a $1.8 trillion deficit next year, after tax rises.
Of course, what the President would like, and what he will get from Congress could be quite different, but with that level of spending, Asia appears to feel that some of that goody bag will fall their way, and Asian equity markets have risen today
Strong economic data yesterday is also supporting stocks, with the number of new US jobless claims falling to a pandemic low yesterday, and US growth confirmed at a pacy 1.6% in the last quarter (while the UK and eurozone contracted).
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
A robust GDP growth in the first quarter, a fresh pandemic low print in weekly jobless claims and the talk of a $6 trillion federal spending package for the coming fiscal year boosted appetite in most equities and the US dollar.
But could inflation fears spoil the party again? Later today we get the latest ‘core PCE price’ index — the US Federal Reserve’s preferred gauge of inflation, which excludes volatile food and energy prices. It’s expected to jump to 2.9% on a yearly basis from 1.8%.
The University of Michigan’s final consumer morale index for May is likely to highlight that inflation worries are hitting confidence (as the preliminary report showed earlier this month).
The agenda
- 10am BST: Eurozone consumer confidence report for May
- 1.30pm BST: US personal income figures for April
- 1.30pm BST: US core PCE Price index (the Fed’s preferred measure of inflation)
- 3pm BST: University of Michigan consumer sentiment index for May