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New spending, new targets, and a new drug

Key takeaways

As COP26 progressed in Glasgow, President Biden’s infrastructure bill passed through US Congress at last, and a potential new tool in the battle against the COVID-19 pandemic may have emerged.

  • Trials of Pfizer’s new anti-viral drug ‘Paxlovid’ showed it to be highly effective in reducing the risk of hospitalisation or fatality in 89% of high-risk patients. If approved by healthcare regulators, the drug could help to further ease the strain on hospitals and healthcare systems, as well as lessening the chances of additional lockdown measures. For now, the COVID-19 picture is relatively stable, with confirmed new cases and deaths marginally rising at a global level, but remaining far below their prior peaks.
  • US President Biden’s $1.2trn infrastructure bill finally passed through the House of Representatives (lower house of Congress), and can now be signed into law by Biden himself. The bill proposes $550bn in new federal investment to upgrade transportation, broadband and utility infrastructure, with some of this funding sourced through unspent pandemic emergency relief funds. Unlike the ‘sugar rush’ economic stimulus delivered at the height of the pandemic, this new expenditure will be spread out over an eight-year period. Progress on Biden’s flagship bill – ‘Build Back Better’, which includes spending on childcare and green energy – could pass later this month.
  • US labour market data released last week saw unemployment rates fall and wages grow. The US Federal Reserve bank also announced that it would start to scale back its monthly bond-buying programme – an important milestone in central bank policy, as the US economy continues to recover and inflation continues to climb. We are seeing clear signs among major central banks that it is time to ease back on pandemic-era stimulus measures, though policy remains highly accommodative and the withdrawal will be gradual.
  • The world’s leading oil producers (‘OPEC+’) have agreed to stick to their original plan to increase oil output by 400,000 barrels per day from December onwards. This comes in spite of appeals from President Biden to opt for still higher levels of output in order to combat rising oil prices.
  • In stark contrast, at the UN’s COP26 event, new national commitments on net zero goals at COP26 showed progress. India’s new 2070 target for net zero carbon emissions was among the most notable. However, even assuming that all nations follow through on their commitments, a substantial emissions gap remains.

Weekly market moves

  • Despite prior signals to the contrary, the Bank of England did not announce an interest rate hike last week. This led to swift corrections in bond markets, where prices had already moved to account for the likely rise in interest rates. Bond prices rose, while yields (which move inversely to bond prices) fell. Sterling also weakened by way of response.

  • In a good week for most major asset types, global stock markets also enjoyed positive gains, with Japanese shares leading the way in sterling terms.

What to look out for this week

  • This week could see an announcement on who will helm the US central bank for the next four-year term. The current chair – Jerome Powell – is expected to remain in situ.

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