Global stock markets push ahead amid Biden’s $6tn budget proposal

·Contributor
·4 min read
US president Joe Biden. Photo: Nicholas Kamm/AFP via Getty Images
US president Joe Biden. Photo: Nicholas Kamm/AFP via Getty Images

Stock markets pushed higher on Friday as investors eyed the unveiling of US president Joe Biden's spending plans, which are reported to be in the region of $6tn (£4tn) in the coming fiscal year.

According to the New York Times, this is set to rise to $8.2tn by 2031.

Citing documents it had obtained, the newspaper said the Democratic president planned to pay for his agenda through increased taxes on corporations and high earners, with budget deficits expected to decrease in the 2030s.

"Plans for a $6tn budget will bring many winners, although it makes sense to take any of today's announcements with a pinch of salt," IG market analyst Joshua Mahony said.

"Despite Biden enjoying a slim majority across congress, the ability to get his original plan across the line is doubtful. Thus while markets will likely enjoy an optimistic end to the week, it could be just a matter of time before we see a heavy dose of reality over just how much of that $6 trillion will see the light of day."

The news kept markets in positive territory was traders anticipated the announcement, with European stocks hit an all-time high on Friday.

The Europe-wide Stoxx 600 index (^STOXX) gained more than 0.6% on the day to a fresh record. It has now gained over 12% so far this year. Every sector pushed higher, led by financials, industrial stocks and utilities.

The Stoxx 600 rose to a record high on Friday. Chart: Yahoo Finance
The Stoxx 600 rose to a record high on Friday. Chart: Yahoo Finance

It came as eurozone economic confidence across the eurozone hit a three-year high. It was lifted by a jump in sentiment at service sector firms, retailers and among consumers, as COVID-19 restrictions ease.

The European Commission’s index of eurozone economic sentiment jumped to 114.5 points in May from 110.5 in April, higher than expected, and close to its December 2017 peak.

The FTSE 100 (^FTSE) closed flat as UK business confidence also hit a five-year high.

More firms in Britain are upbeat about the economy than at any time since 2016, the Lloyds Bank Business Barometer showed.

It said that optimism rose five percentage points to 37% this month, a level last reached before the Brexit referendum. It was boosted by companies planning to hire more staff, and also expecting higher pay and price growth.

The survey, conducted between 4 May and 18 May, also showed that businesses in the manufacturing sector reported a brighter economic outlook, up 13 percentage points compared with the previous month and the highest of any sector.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said that the fourth consecutive monthly increase in business confidence, “leaves us hopeful for the UK’s economic recovery”.

Elsewhere in Europe, the French CAC (^FCHI) rose 0.8% and the DAX (^GDAXI) was 0.7% higher in Germany.

Watch: UK economy contracts in Q1, but rebounds in March

Across the pond, the S&P 500 (^GSPC) rose 0.3% and the tech-heavy Nasdaq (^IXIC) was 0.5% higher. The Dow Jones (^DJI) gained 0.3% at the time of the European close.

It also followed a key measure of US inflation reaching its highest level since the early 1990s, as price pressures build amid the economic recovery. The core personal consumption expenditures (PCE) index increased by 3.1% in April from one year ago, the Commerce Department reports.

While US inflation picked up sharply in April, personal incomes fell by just over 13% during the month.

On Thursday, jobless claims fell again to the lowest level since March of last year, while the annualised rate of economic growth was reported to be running at 6.4%.

Read more: Jobless claims: Initial filings fell for a fourth straight week to set new pandemic-era low

“Further signs that the US economy is beginning to run hot prompted another switch into value stocks, at the expense of growth,” Richard Hunter, head of markets at interactive investor, said.

“Forthcoming weeks will provide further colour as to whether inflation is becoming entrenched or whether it is indeed transitory as the Fed insists. This will bring with it the likelihood of both market volatility and the waxing and waning of investor sentiment as the true picture emerges.”

Asian stocks were mixed overnight, with MSCI’s broadest index of Asia-Pacific shares outside Japan adding small gains.

The export-sensitive Nikkei (^N225) surged 2.1% in Japan, despite the country extending its state of emergency, while the Hang Seng (^HSI) edged almost 0.1% higher and the Shanghai Composite (000001.SS) dipped 0.2%.

“Given its sensitivity to swings in the business cycle, commodity prices and global trade, Asia’s financial markets could arguably be said to benefit most from a big spending US fiscal package,” Kyle Rodda of IG said.

“As much seemed to manifest in the region’s stock markets today: Asia’s benchmark indices have generally put in solid rallies to end the month – with the notable exception of Chinese stocks, which have traded flat – as markets discount the possibility of another pump-priming of global growth by the US.”

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