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August 18, 2021
  • US Senate passes the bipartisan Infrastructure Bill
  • China’s growth figures miss yearly market forecasts

The US Senate approves sweeping $1 trillion bipartisan Infrastructure Bill

On 9th August, the US Senate passed President Joe Biden’s flagship infrastructure bill, intended to invest record amounts in public transit, passenger rail, roads and bridges, clean drinking water and waste-water infrastructure, high-speed internet, clean energy transmission and EV infrastructure.

Once signed into law, the bill would mark the biggest investment in US infrastructure in decades. The outlay on infrastructure during the Great Depression in today’s terms would amount to $4 trillion over a decade– roughly what the US spends annually on national defense.

The proposed US infrastructure spend is $1 trillion over a decade. Per year, that would represent approximately 1.0% of American GDP, compared to 0.91% for the UK, 0.94% for Japan, and 5.56% for China, per the Council on Foreign Relations. 

The bill will not get to the President’s desk for several weeks, however. The House will be back in session to consider legislation on 23rd of August. The infrastructure bill alone is expected to add $256 billion to the deficit over the next 10 years. An additional $3.5 trillion budget plan is also on the table, potentially delaying passage of the infrastructure bill.

The infrastructure package is being financed with about $205 billion in unspent Covid-19 relief aid, and repurposed Federal unemployment assistance returned by some states, as well as money recouped from delaying a Trump-era Medicare rebate rule. Aside from previously approved funding, new spending accounts for $550 billion of the package.

All eyes are now on infrastructure-related stocks. Businesses with ties to roads, bridges, transportation, water and broadband communications, manufacturers of steel, concrete, cement, asphalt, and other traditional construction materials, as well as green energy companies, are well placed. In fact, prices for those of asphalt makers to construction-machinery companies have already rallied sharply in anticipation of the bill’s passage. The iShares US Infrastructure exchange-traded fund (IFRA) is up 43.7% in the past year, about 10.2 points ahead of the S&P 500.

While the extra revenue per year that this bill might represent for incumbents will be spread over 10 years, and some of the increase would be consumed by cost inflation, signing of the bill into law would certainly provide a very helpful growth tailwind for some operators for the years ahead.

China’s growth figures miss yearly market forecasts 

Industrial production growth figures in July were at +6.4% year-on-year, missing earlier expectations of +7.8% – and down from a +8.3% gain in June. Retail sales growth also eased, marking +8.5% in July YoY from a 12.1% gain the previous month; market expectations had been of 11.5%. With households sitting on piles of cash, credit activity also slowed sharply in July, below consensus. In view of the July numbers, any easing of rates appears unlikely from the People’s Bank of China; more likely is a new RRR cut.

What’s the latest in the global recovery?

In the US, recovery in industrial activity continues, with production having risen by 0.9% MoM in July, above the 0.5% consensus. However, the ISM index fell that month, along with the slowing growth in manufacturing output. Retail sales also fell in July, by 1.1% MoM, and below the consensus of -0.3%. The NAHB index, a homebuilders’ survey, fell to 75 in July from 80 one month earlier, below the consensus of 80 (yet the index is high compared to the extent of the drop in mortgage applications).

Showing no signs of a fall was America’s coronavirus case rate, as severely affected parts of the country post record numbers of infections. As global concerns over the Delta variant continue, the city of Auckland in New Zealand locked down and China partly closed the world’s third-busiest port.

The Eurozone posted estimates of headline inflation in July at +2.2%, with energy and food prices as the main drivers, while core inflation fell slightly. German CPI was up by 3.8% in July from 2.3% the previous month, on the back of higher energy prices and the base effect of last year’s temporary VAT cut. That said, the GDP growth forecast for 2Q21 is at+1.5% QoQ, boosted by consumer spending. British GDP growth for the same period is at +4.8% – in line with the bank of England’s forecast, but still lagging the rest of the G7 economies.

  • 23rd August: The Eurozone will check consumer confidence.
  • 25th August: As the US economy looks to make progress toward its goals on employment and inflation ,but tackles a record rise in coronavirus infections, Wednesday will be a chance to take stock of national mortgage applications.

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