By Peter Nurse
Investing.com -- The Federal Reserve is more likely to wait until November until announcing a formal tapering of its bond-buying program, according to Goldman Sachs. The Democrats advance their progressive spending plans, while German businesses worry about supply bottlenecks. Crude hands back some recent gains, while Wall Street edges higher. Here's what you need to know in financial markets on Wednesday, 25th August.
1. Goldman sees increased chance of November tapering
The annual Federal Reserve gettogether at Jackson Hole, Wyoming, has been at the forefront of investors’ minds for some time, with sentiment shifting over the outcome.
A speech by influential Fed policymaker Robert Kaplan at the end of last week prompted risk taking after he suggested that the rise in Covid-19 cases in the country, largely due to the highly transmissible delta variant, could persuade him to vote for a delay in the reining in of the central bank’s massive bond-buying program.
Prior to this the widely held belief within the market had been that the improving labor market and the high inflation levels would prompt the Fed to announce a tapering timetable at this meeting.
Goldman Sachs said Wednesday it had raised the odds that a formal taper announcement will come in November to 45% from a previous forecast of 25%, and lowered the December chance to 35% from 55%.
2. Democrats advance $3.5 billion budget plans
President Joe Biden’s ambitious domestic agenda took a step forward Tuesday after the U.S. House of Representatives approved a $3.5 trillion budget framework.
The progressives within the Democrat party have plans to spend trillions of dollars on a number of social programs, but face difficulties getting these proposals through Congress given the party holds razor-thin majorities.
Republicans vehemently oppose the plans, citing the cost and the country’s precarious financial condition. But the approval of the framework should allow Democrat lawmakers to begin filling in the details on the sweeping package that would boost spending on child care, education and other social programs and raise taxes on the wealthy and corporations.
3. Stocks to edge higher; Salesforce earnings due
U.S. stocks are set to open marginally higher, struggling to add to record levels as investors hunker down ahead of the important Federal Reserve symposium at the end of the week (see above).
By 5:40 AM ET (0940 GMT), Dow Jones futures were up 6 points, less than 0.1%, while S&P 500 futures were up 2 points, or 0.1%, and Nasdaq 100 futures edged up 17 points, or 0.1%.
The broad-based S&P 500 closed 0.2% higher Tuesday, its fourth-straight positive session and a new closing high. The tech-heavy Nasdaq Composite rose 0.5%, also hitting a record close, while the blue chip Dow Jones Industrial Average gained 0.1%.
The quarterly earnings season is coming to an end, and it has been a largely successful one, helping to support the overall market. At the start of the week, 476 of the companies in the S&P 500 had posted results and of those, 87.4% had beaten consensus, according to Refinitiv data.
There are still some companies reporting Wednesday, including Salesforce (NYSE:CRM), one of the last big technology companies to report, cloud-based data storage company Snowflake (NYSE:SNOW), and cosmetics and beauty product retailer Ulta Beauty (NASDAQ:ULTA).
4. German businesses fret over supply issues
German manufacturers, often Europe’s main economic driver, are growing increasingly worried that a global supply squeeze and rising Covid infections will hurt the region’s economic recovery.
The Ifo Institute’s influential business climate index fell to 99.4 in August from 100.7 in July, falling for the second month in a row.
“Supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers are putting a strain on the economy,” Ifo President Clemens Fuest said in a statement.
Illustrating this, German exports to China, the country’s second biggest sales market outside of the European Union, declined by 3.9% year-on-year, the first drop since August 2020, according to data released Wednesday.
However, it’s not all bad news, as European Central Bank Vice President Luis de Guindos said earlier Wednesday that the central bank could revise up its macroeconomic projections for the eurozone in September after recent solid activity indicators in the third quarter.
5. Crude hands back some recent gains
Oil prices edged lower Wednesday, handing back some of the recent strong gains although losses are limited following signs that demand in the U.S., the largest consumer of crude in the world, is holding up despite the spread of the Covid-19 delta variant.
By 5:40 AM ET, U.S. crude futures were down 0.3% at $67.33 a barrel, while Brent futures dropped 0.3% at $70.19 a barrel.
Both contracts have risen by around 8% over the previous two days, helped by the loss of more than 400,000 barrels per day of supply in Mexico after a fire on an oil platform.
Data from the industry group the American Petroleum Institute, released late Tuesday, showed crude inventories fell 1.6 million barrels for the week ended Aug. 20, while gasoline stockpiles fell 1 million barrels.
Official data from the U.S. Energy Information Administration is due to be released later Wednesday.