By Stephen Innes, Chief Global Market Strategist at Axi,
US President Joe Biden will deliver a speech on infrastructure tonight (US time).
This could make for an interesting Asia open on Thursday as higher US Treasury yields are still very much front and centre.
There were media reports that President Biden will outline a $2.25 trillion package, including $650 billion on transport, $300 billion on housing, $300 billion on a manufacturing revival, $400 billion in clean energy credits and hundreds on billions on broadband.
With spring in the air and President Biden expected to formally unveil a $3 trillion infrastructure plan, just as the acceleration in activity from stimulus checks hitting doormats is feeding into the alt-data, it could provide a smoother and lengthier runway for risk to initially take flight.
But spending the money is the easy part. However, the more difficult decision is how to pay for it. And with all roads intersecting at “tax hike junction”, Wall Street won’t be enamoured, so all that is yummy around the infrastructure deal will need to be taken with a pinch of tax man salt.
The street uniformly believes US data is at an inflexion point and Friday’s Non-Farm Payrolls (NFP) will be the beginning of a sharp acceleration on the US jobs markets.
However, the constant discussion at every virtual market corner remains concerned about intense bond market reactions to robust incoming data and inflation risks beyond the base effects.
The more robust data could drive US yields furiously higher and hammer a massive wedge at the index level between financials, which tend to act better to higher yields, and the large-cap tech stocks that go on a buyers’ strike.
Let’s step back from the “hair on fir ” view. The fact that stocks remain at record highs despite US yields ripping higher suggests at some level that investors are buying into the US Federal Reserve’s average inflation targeting strategy (AIT), which anchors short-end rates but allows bond yields to rise, encouraging more banks to lend.