Markets edge higher as inflation fears worry investors

Dow went up 124 (200 below early highs) , advancers over declines about 2-1 & NAZ  lost 64.  The MLP index traded in the 187s & the REIT index was little changed in the 427s.  Junk bond funds fluctuated & Treasuries were ever so slightly higher.  Oil rose 1+ to the 63s after selling this week & gold was off 1 to 1880 (more on both below).

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Reps are not willing to compromise on Pres Biden's $2.3T infrastructure plan unless the White House settles on a target without revisiting the 2017 tax bill, Senate Minority Leader Mitch McConnell said.  "If [Democrats] are willing to settle for a targeted infrastructure bill without reducing the 2017 tax bill we’ll work with them," McConnell said.  "But if they want a $2 [trillion] to $4 trillion package it’s not going to have any Republican support."  McConnell also said the 2017 tax reform bill was the "single most important thing" that helped the country over the past 4 years & the Senate Reps refuse to reexamine the legislation.  "It produced the best economy in 50 years by February of 2020, right before the pandemic hit," McConnell continued.  "We're not going to touch that and that's what the president wants to blow the lid off of."  These comments come ahead of the White House & Senate Reps meeting today to resume infrastructure talks.  The Biden administration set a "soft" Memorial Day deadline to reach an agreement.   Infrastructure negotiations began in Apr when the Reps offered an initial $568B proposal.  McConnell suggested last week there's an appetite for a package that costs as much as $800B, so long as it focuses solely on traditional infrastructure, including roads, ports, bridges, water lines & broadband.  "We’ve been talking to them and Shelley Moore Capito of West Virginia I’ve asked to take the lead on this about doing an infrastructure bill that’s really about infrastructure – roads, bridges, ports, waterlines, sewer lines, broadband – something we can all agree is infrastructure," McConnell explained yesterday.  He went on to say the administration's plans to increase corp & individual tax rates will impact every American.  "They want to raise everyone’s taxes, it won’t just be people making $400 thousand or more."

McConnell: Republicans won't budge on infrastructure plan topping $2T

Gold futures finished lower, halting a streak of 6 consecutive gains, which helped them tally a 3rd weekly climb.  Gold prices yesterday settled at their highest in more than 4 months, extending a streak of daily gains to the longest since last Jul.  Strength in the $ also contributed to gold's overall gains.  The ICE US Dollar Index trades more than 1% lower for the month & down over 3% for the qtr.  Today Jun gold fell $5 to settle at $1876 an ounce.  For the week, gold futures, based on the most-active contracts, still gained 2.1%, marking its 3rd consecutive weekly advance.  Gold prices haven't been above $1900 since early Jan. 

Gold prices settle lower, but tally 3rd straight weekly gain

Philadelphia Fed Pres Patrick Harker said he wants the central bank to start talking about when to slow down its bond purchases.  “I am of the camp that sooner rather than later, we should start talking about tapering,” Harker said.  His comments come days after minutes from the Fed's Apr meeting indicated that “a number” of top Fed officials wanted to talk about a plan to eventually scale back some of the easy-money policies that have been in place, including its bond-buying program, since the height of the pandemic in the US back in Mar & Apr.  “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes read.  The Fed is currently buying $80B of Treasuries & $40B of mortgage-backed securities each month, along with keeping its policy rates close to 0%, to keep financial markets calm & support the economy.  In Dec, the Fed said it would keep buying assets until there was “substantial further progress” in reaching the Fed's goals of a healthy labor market & stable inflation.  Before Harker's comments, only Dallas Fed Pres Rob Kaplan had indicated a willingness to begin a discussion of tapering.  During his talk today, Harker said that “clearly part of that conversation would be the MBS tapering.”  Many economists have questioned the need for the Fed to be buying mortgage-backed securities given the strength of the housing market.  New York Fed Pres John Williams said earlier this month that the Fed's mortgage-bond purchases have powerful spillovers into the corp bond market & other similar types of securities.

Harker joins Kaplan in saying the Fed should discuss tapering bond purchases ‘sooner ratheair than later’

White House aides working on a bipartisan infrastructure deal made a counteroffer today to Rep senators, reducing their initial proposal by $600B.  The latest offer would cost $1.7T over a decade, White House press secretary Jen Psaki said.  In order to trim the original $2.3T plan down to $1.7T, the White House would reduce funding for rural broadband, as well as for bridges & roads.  It would also shift funding for research & development, small businesses & supply chain improvements from this package over to separate legislation that's being debated in Congress. The counteroffer would keep several of the provisions in Biden’s plan that Reps deeply oppose, like money to help pay eldercare home health aides & funding to help expand the use of electric vehicles.  Psaki called the counterproposal “the art of seeking common ground.”

White House makes $1.7 trillion infrastructure counteroffer to Senate Republicans 

Oil futures climbed, buoyed by a possible storm formation in the Gulf of Mexico.  But prices still registered a weekly loss, pressured in part by signs of progress toward a restoration of the Iran nuclear deal, which could lead to more oil on the global market.  The National Hurricane Center showed a tropical disturbance forming in the Gulf & warned that an increase in activity could result in the formation of a “short-lived tropical depression or storm before the system moves inland over the northwestern Gulf Coast” late today.  The news comes a day after the National Oceanic & Atmospheric Administration said it predicts another “above-normal” Atlantic hurricane season, but experts do “not anticipate the historic level of storm activity seen in 2020.”  West Texas Intermediate (WTI) crude for Jul rose $1.64 (2.7%) to settle at $63.58 a barrel, following a loss of 2.2% yesterday.  Jul Brent crude, the global benchmark, advanced $1.33 (2%) to $66.44 a barrel after yesterday's 2.3% decline.  For the week, US benchmark WTI oil still logged a fall of 2.7%, based on the front-month contracts, while Brent crude declined by 3.3%.  Iranian Pres Hassan Rouhani said the US was ready to lift sanctions, though there was no confirmation from the US.  However Rouhani was contradicted by a senior Iranian official.

Oil prices finish higher, suffer a weekly loss on progress toward Iran nuclear deal

The counter-proposal by the White House failed to excite traders.  Stocks drifted lower.  One reason is that gov workers tend to cut meaningful stuff & leave the pork alone.  The nuclear deal is floating around, another worry for investors.  Then there is a new storm heading for the Gulf.  The Dow finished down 180 for the week but was able to remain above 34K.

Dow Jones Industrials