US markets edge into all-time highs overnight after the Biden administration gained support for the next round of fiscal stimulus. The decision to push forward on only part of the original infrastructure bill whilst not increasing the corporate tax rate seems to have the support needed to push it through. They will still need to vote it through congress. The big question remains on how they will create funding, with many now talking about the private sector funding projects.
One way or another if they continue to commit to these types of projects, it will create more jobs and help the US economy rebound. Therefore, also positive for markets. If Biden can show a clear path of fiscal spending over the next 4 years it will take the pressure off the central banks, and help stop markets from being so volatile if or when interest rates rise.
The FED released their stress test with all 23 US banks passing. They remained “well above” minimum required capital levels during a hypothetical economic downturn. The FED has given the green light to the banks to start buying back shares and increasing dividends. This small bit of information is big news for the US markets and will give even more reason for the market to continue higher from here. We saw this through QE 2 and 3 after the GFC, where companies used cheap borrowing to buy back shares. When companies do this, it makes their Price to Earnings ratio fall and makes their shares more attractive.
Australian Outlook
The XJO is expected to open higher this morning following U.S markets making fresh all-time highs last night. Their futures also sit strongly in the green, so our market will likely hold the gains today.
Our open should have us test the resistance around 7325, which was the resistance of the recent consolidation range. It will also test a potential short-term downtrend line that could be forming.
If we manage to push through then there is little in the way for us to get back to our all-time highs, though it is likely we need to see the U.S continue its strength for this to occur.
US Markets
US shares rose overnight, with fresh all-time highs recorded by the SP500 and NASDAQ indices. This came as the Federal Reserve announced that all 23 of the US’s biggest banks passed the ‘stress test’ overnight, which paves the way for these banks to start paying larger dividends and doing share buybacks moving forwards. Economic data overnight was a bit mixed, with lower continuing jobless claims than expected but higher new jobless claims, we also saw with lower durable goods orders than expected.
We also saw first quarter GDP for the US released overnight, with GDP in line with expectations and a annualised growth rate of 6.4 percent. While the economic data wasn’t the most positive, it did allow for further discussion around stimulus and indeed overnight, it appeared that US lawmakers made progress working on President Biden’s infrastructure bill. Most industry groups of the S&P500 rose overnight, with Financials and Energy stocks rising the farthest, while Real Estate and Utilities were the only stocks to close lower on average.
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Tim Michaelides is the Head Trader at Emerald Financial Group.
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