US infrastructure plan – building America again.
President Biden announced last Thursday a bipartisan deal for a infrastructure plan just shy of $1tn. Of this, almost $600bn would be in new spending. Most of the new spending will be focused on roads, airports and hard infrastructure. The plan is a first step towards Biden long-sought objective of achieving $4tn in infrastructure spending. The deal is significant as it is bipartisan, making its approval likely quicker (it could be approved by the end of summer) and opening the door for more bipartisan cooperation on spending. Market reaction has been muted, in part because infrastructure is smoothed on a multi-year basis, and in part because Treasury issuance for the year has already been defined. Still, we see the approval as a positive, given the high multiplier / high growth features of infrastructure spending and the clear US needs in that area. Infrastructure spending and the definition of the bill is likely to be the key focus of the US administration in the next few months.

Hawks start flying in EM.
This week saw a flurry of hikes in emerging markets. On Tuesday, Hungary’s NBH hiked 30bp and started the hiking cycle on Tuesday. Czech’s CNB followed suit on Wednesday. Finally, on Thursday, Mexico’s Banxico surprised the market with a hike despite broad expectations for a more patient approach. In the past few months, Russia and Brazil also started their hiking cycles. EM hikes come as a consequence of robust inflation numbers. In many emerging markets, inflation is now running 1-2% above target, with food and commodity prices leading the increases but core components moving too. While most of the spike is temporary (in line with developed countries), strong moves may ultimately alter the price formation process, and force central banks to hike. We believe the trend will continue, with Peru, Chile, Colombia potentially joining the hawkish club soon. Hawkish EM central banks bode well for FX, which underperformed risk assets on a 12m basis. BRL, RUB, MXN have more space given position and starting levels. Rates are less interesting since they broadly anticipated the turn.

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