And Watch for the Vote on the Debt Limits
American markets today, Wednesday, viewed several hours before opening at 9:30 a.m. EST appear headed for a mixed start. The Dow is in the green and the S&P 500 is struggling to climb out of the red at time of writing and has been improving even as I write this column. While it is not certain, it is within the realm of possibility that it will go positive during the morning.
The markets will continue absorbing passage yesterday by the United States Senate of the $1 trillion infrastructure package which provides for the biggest investment in recent history in roads, bridges, airports, public transit and other structures. The Dow and the S&P 500 hit record highs, boosted by value stocks after the Senate vote. The Dow closed at 34,264.67 and the S&P 500 closed at 4,436.75 while the Nasdaq dropped to 14,788.09.
The bill now goes to the House of Representatives for a vote but will not be likely be signed into law until September or even October. “It’s a huge investment and a huge victory for the Biden administration but it's not the end of the story and the bill now faces a difficult path as it negotiates its way through the House," said Danni Hewson, financial analyst at AJ Bell in a Reuters report.
Last night, the Senate also approved a $3.5 trillion plan and that too now goes to the House. This one provides for social benefits and climate-change technologies. While a collective sigh of relief is certainly in order, looming over the scene is a possible showdown in fall over a vote to raise the government’s borrowing limits. Failure by lawmakers to agree on raising the debt limit from the current $28.5 trillion could conceivably trigger a shutdown or default.
Still in the infrastructure category, investors and analysts will also be watching shares in Canadian Pacific Railway Ltd. which closed yesterday at $72.21, down $0.50 following its new $27 billion offer for Kansas City Southern. CP had previously refused to raise its $25 billion bid. However, the days are counting down to the vote by Kansas City shareholders on the offer by Canadian National Railway Co. which closed at $107.27, down $0.74 on the day. Not surprisingly, Kansas City Southern closed at 289.59, up $19.99 on the day. Either suitor stands to become a railway behemoth by acquiring Kansas City Southern.
Canadian markets, also viewed several hours before the 9:30 a.m. opening, also appear poised for a strong start with the TSX 60 promising at time of writing.
European markets are open at time of writing and all indicators there are strongly positive.
Amongst precious metals, the safe haven of gold is up while silver is down.
Amongst currencies, the British pound sterling, Euro and Canadian dollar are all down against the American greenback. Meanwhile, the pound sterling has several supports, according to Jeremy Thomson-Cook, Chief Economist at London-based payments firm Equals Money.
Thomson-Cook adds that news that the United Kingdom has sourced another round of Pfizer vaccines could also help support sterling. “This comes as most governments have begun to warn that Covid-19 prevention will be a lot like flu prevention moving forward.
By comparison, the American greenback is, in effect, biding its time he says. “Despite the focus on unemployment in the United States today’s inflation number is still very important. It’s still likely too early to tell how inflation is settling in most developed nations with the effects of reopening and supply chain issues still making a material mark on businesses to be able to price their goods and services competitively and attractively,” he explains. The equation hinges on inflation. “It may not look like it in developed markets – against the (pound, Euro and Japanese Yen) for example – but the dollar is less than a per cent from its highest level of the year. A strong inflation number will be enough to see it break to those highs in the coming days.”
Upcoming clues about the continuing impact of the pandemic are mixed. eBay Inc. releases second quarter results today, likely boosted by the continuing shift to online shopping. Investors and analysts will be curious about eBay’s outlook for online sales, especially in light of Amazon.com’s recent mixed results. Wendy’s also reports second quarter results today and should show the benefit of the re-opening of the American economy. Wendy’s results also intimate the relative health of some parts of the fast-food sector. ** They’re not all the same. Parts of the sector had a quicker-than-expected recovery.
Bumble Inc. also reports second-quarter results on Wednesday and like so many operations, the online dating app benefitted during the pandemic by accommodating the desire of many individuals to conduct online the activities that they would normally have done in real time – even looking for a date. Also like so many operations, investors and analysts will want to know how what to expect as the economy re-opens and whether the highs of the pandemic can be sustained.
The Walt Disney Co. reports third quarter results tomorrow. Investors and analysts expect an increase in revenues, driven at least in part by the reopening of theme parks but both groups will be listening for the projected impact of the increases in Delta variant cases. Growth may have slowed in subscriptions to Disney+, the company’s streaming arm as consumers returned to going out for entertainment. Also tomorrow, the U. S. Labor Department will release initial claims for state unemployment benefits, which are expected to show a drop from last week.
The market effects of the pandemic and shift to a recovery mixed with a wariness of the Delta variant will be with us for some time.
**In a future column I will take a detailed look at restaurant stocks.
Al Emid is a financial journalist broadcaster and author. His next book. The 2022 Emid Report on Volatility provides a map for navigating market tumult and is scheduled for release in January 2022