Fed cuts, Democrats spending, German business problems

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By Peter Nurse

Investing.com – The Federal Reserve is more likely to wait until November before announcing a formal cut to its bond buying program, according to Goldman Sachs. Democrats push forward with phased spending plans, while German businesses worry about supply bottlenecks. Crude is restoring some recent gains, while Wall Street is on the rise. Here’s what you need to know about the financial markets on Wednesday, August 25.

1. Goldman sees increased reduction odds in November

The Federal Reserve’s annual meeting in Jackson Hole, Wyoming has been at the forefront of investor concerns for some time, with opinion shifting over the outcome.

A speech by influential Fed policymaker Robert Kaplan late last week prompted risk-taking after suggesting that the increase in Covid-19 cases in the country, largely due to the variant highly transmissible delta, could persuade him to vote for postponing control of the massive central bank bond purchase program.

Prior to that, the widely held belief in the market was that improving labor market and high levels of inflation would prompt the Fed to announce a cutback schedule at this meeting.

Goldman Sachs said on Wednesday it had increased the odds of a formal cutback announcement coming in November to 45% from a previous forecast of 25%, and lowered the odds for December to 35% from 55%.

2. Democrats advance $ 3.5 billion budget plans

President Joe Biden’s ambitious national agenda stepped forward Tuesday after the US House of Representatives approved a $ 3.5 trillion budget framework.

Progressives in the Democratic Party intend to spend trillions of dollars on a number of social programs, but are struggling to get those proposals through Congress given the party’s very slim majorities.

Republicans vehemently oppose the plans, citing the cost and the country’s precarious financial situation. But approval of the framework should allow Democratic lawmakers to start filling in the details of the broad package that would increase spending on child care, education and other social programs and raise taxes for the rich and corporate alike.

3. Stocks on the rise; Salesforce revenue owed

US stocks are expected to open slightly higher, struggling to hit record highs as investors pull back ahead of the Federal Reserve’s important symposium at the end of the week (see above).

At 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 on Tuesday, its fourth consecutive positive session and a new closing high. The tech-rich Nasdaq Composite rose 0.5%, also hitting a record high, while the blue chip Dow Jones Industrial Average gained 0.1%.

The quarterly earnings season is drawing to a close and has been largely successful, helping to support the overall market. As of the start of the week, 476 of the S&P 500 companies had released results and of those, 87.4% had exceeded consensus, according to data from Refinitiv.

There are still a few companies reporting Wednesday, including Salesforce (NYSE: CRM), one of the last big tech companies to report, cloud data storage company Snowflake (NYSE: SNOW) and cosmetics retailer and of Ulta Beauty cosmetics (NASDAQ: ULTA).

4. German companies are worried about supply issues

German manufacturers, often Europe’s main economic engine, increasingly fear that a squeeze in global supply 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, down for the second consecutive month.

“Bottlenecks in the supply of intermediates in manufacturing and concerns about rising infections are straining the economy,” said Ifo President Clemens Fuest in a statement.

By way of illustration, German exports to China, the country’s second largest sales market outside the European Union, fell 3.9% year-on-year, the first drop since August 2020, according to data released on Wednesday. .

However, it’s not all bad news, as European Central Bank Vice President Luis de Guindos said on Wednesday that the central bank may revise its macroeconomic projections for the euro area in September after recent indicators. solid activity in the third quarter.

5. Crude returns recent gains

Oil prices edged down on Wednesday, restoring some of the recent solid gains although losses are limited following signs that demand in the United States, the world’s largest consumer of crude, is holding up despite the variant’s spread. Covid-19 delta.

As of 5:40 a.m. ET, U.S. crude futures were down 0.3% to $ 67.33 a barrel, while Brent futures fell 0.3% to 70.19 $ per barrel.

Both contracts rose about 8% in the previous two days, helped by the loss of more than 400,000 barrels a day of supply in Mexico after a fire at an oil rig.

Data from industry group the American Petroleum Institute, released Tuesday night, showed crude inventories fell 1.6 million barrels for the week ended August 20, while gasoline inventories fell by 1 million barrels.

Official data from the U.S. Energy Information Administration is expected to be released later Wednesday.

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