US and European stock futures are in the green with President Biden boosting the bulls after reaching a bipartisan infrastructure deal.  The Dow has now reversed all the losses sustained due to the hawkish shift from the FOMC while the Nasdaq and S&P500 hit fresh record highs yesterday at 4,266 and 14,369 respectively.

Investors have been looking to an infrastructure agreement to extend the recovery in the world’s largest economy and the positive market tone recognises the potential growth of the deal, even if there have been numerous compromises. The smaller size does temper some of the tax implications to pay for it, but this issue may rear its head in the next few months with the next fiscal stimulus measures planned by the President.

More price pressures on the docket

The Fed’s preferred inflation measure, Core PCE, gets released later today as the market once again fixates on how big and how long one-off drivers will be as the battle between the “inflationistas” and those who prefer the “transitory” explanation intensifies, both on trading desks and most importantly, at the Federal Reserve.

We’ve heard both sides of the fence this week from numerous Fed officials, with their competing versions singing from their hymn sheets. But of course we know that upside surprises have been commonplace in inflation data recently. Economists expect the headline Core PCE figure to post annualised gains of 3.4% which comes on the back of near 30-year highs of 3.1% recorded in May, while the month-on-month reading is forecast to rise 0.6%.

Greenback treads water

While other risky assets have kept relatively calm after their initial selloff and carried on higher, the dollar is consolidating near its two-month highs made after the Fed meeting last week. After printing multi-week highs, consolidation has been the name of the game for the greenback this week with a few “inside days” being seen in the majors yesterday.

USD/JPY made new cycle highs in Thursday’s session at 111.12 before pulling back below the psychological big figure mark and closing at 110.84.  The pair is now trading just below the previous year-to-date high at 110.97 so this area is key for the weekly close and whether bulls can push north next week. Much may depend on the bumper Core PCE data, which includes consumption numbers that will tell us if Americans are starting to buy more services and less goods.

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