Market situation:
President Biden’s incentive plan is likely to be approved this coming Tuesday after it received Senate approval last weekend. Markets are torn between the program’s being a contributor to stronger growth and concerns about inflation expectations. China’s annual national congress conference being held these days may shed more details on the country’s growth plans. In the macro data segment, attention will be drawn to the consumer price index on Wednesday and the price index to the consumer sentiment of the University of Michigan on Friday.
In the eurozone there is not much macro data this week except for the consumer price index in Germany for February which will be published on Friday. The consumer price index figure is also expected to be released in China on Wednesday and India on Friday. At the forefront of monetary policy The main event this week will be the ECB meeting on Thursday but unexpected actions and interventions in other regions of the world may occur. The price of oil is expected to remain in focus after 2 attacks on oil facilities in Saudi Arabia yesterday.
Economic events log:
Crimson:
Germany – Industrial production for January.
Third:
Japan – GDP Quarter 4.
Eurozone – GDP, Q4.
Germany – Trade balance for January.
Wednesday:
China – Consumer price index, producer price index, foreign direct investment (all data for February).
United States – Consumer Price Index for February, Monthly Finance Budget.
Canada – Meeting of the Canadian Central Bank.
Fifth:
Australia – Consumer inflation expectations for March.
Eurozone – European Central Bank-ECB meeting.
United States – January Open Jobs Schedule, Weekly Unemployment Claims.
sixth:
Germany – Consumer Price Index February.
United States – Manufacturer’s Price Index for February, University of Michigan Consumer Confidence March.
Pad has no easy solutions
The futures contracts on the 500s index are down slightly this morning after strong gains last Friday against the backdrop of the strong employment report released. Yields continue to be the main story when a 10-year government bond of the United States trades below a level of 1.6 percent. The good news is that the Senate incentive plan approval has not led to a strong jump in yields. The negative reaction to Fed Chairman Powell’s speech last Thursday illustrates how central banks around the world find themselves between a rock and a hard place.
Continued statements on expansionary monetary policy (as Fed Chairman Powell reiterates) add to fears of inflation but also taking a reduction in expansionary policies will lead to declines in the markets. Consumer price index data on Wednesday and producer price index on Friday could lead to market nervousness.
The Bottom Line: Markets will continue to be nervous and volatile as they fear inflation and declining monetary policy in the future.
The UK budget illustrates the fiscal difficulty of developed countries.
The focus remains on the fiscal plan in the United States but the disclosure of the budget in the UK last week also indicates important rates for developed countries when it comes to fiscal policy. In light of the fact that the budget in the UK is published over the months of March and April this is the first budget of a developed country in an era of recovery after vaccination against the corona. Chancellor of the Exchequer Sonak has decided to postpone the economic pain for the time being by leaving most of the aid plans in place at the expense of future harm (the 2023 corporation tax increase which is tantamount to raising the highest taxes in GDP terms since 1960) has political logic but has been accused of economic inequality. Sonak estimates that most other developed countries will be forced to raise corporate tax as well otherwise raising corporate tax in the UK will only hurt property and investment prices in the UK.
The Bottom Line: The UK budget proposal indicates the difficulty that governments will have to face in order to balance political considerations and economic goals.
China: NPC Conference and Budget
Fiscal policy is also an issue for the NPC that has been launched. The NPC must reach an agreement on the budget. Due to the fact that the Chinese economy is already growing at a high rate, emphasis has been placed on lowering some of the existing fiscal incentives (such as the issuance of local government bonds and special central bank bonds). Strong economic growth should lead to an increase in tax revenues and thus allow for an overall increase in expenditure despite a decrease in the budget deficit (a 6.8 percent increase in the defense budget has already been announced).
Chinese Prime Minister Li Keqiang said at the opening of the conference that the government expects at least 6% growth in economic growth for 2021. A low growth target was part of the conference’s expectation given the government’s priority for quality rather than rapid growth. Macro data in China for the coming week will include the consumer price index, the producer price index and the data on foreign direct investment in the country, all for February, and will be published this coming Wednesday. The foreign trade balance data released this morning indicated a 50.1 percent increase in exports in January / February thanks to the base effects of the corona virus last year.
The Bottom Line: The Chinese budget is expected to point to the removal of some of the existing fiscal incentives while the emphasis remains on significant long-term growth.
United States: Fiscal Program and Labor Market
The Senate agreed last weekend to pass the fiscal incentive program after small compromises mainly regarding eligibility for assistance to the unemployed. The fiscal plan is perceived by the market as having a connection to the American labor market and in this sector the news is getting better with the background of faster distribution of the vaccine and removal of restrictions in some countries. The monthly employment report last Friday indicated the creation of 379,000 new jobs in February in line with most market forecasts. Another figure in the weekly unemployment claims actually showed a slight increase to the level of 745,000 applications for the week ending February 27.
Claims this week also for special corona federal aid recorded an increase of 436,000 even though they were affected by the extreme weather in Texas. With the labor market now showing stronger signs of recovery, markets will pay special attention to the next weekly unemployment claims figure released on Thursday as well as the University of Michigan consumer confidence this coming Friday in an attempt to assess consumer optimism.
The Bottom Line: Another fiscal aid program has been approved and there are growing hopes that the labor market is bouncing back.
Eurozone: The European Central Bank – ECB has little to innovate
The news in Europe continues to be in their quarrel around the corona virus with restrictions and a slow pace of population vaccination. Therefore when the European Central Bank meets this coming Thursday, its meeting will not be the center of attention in light of the work because there are no expectations in the markets for a substantial change in the Bank’s monetary policy. At the same time the president of the bank will have to navigate well at the press conference when it may encounter tricky questions from the media.
European bond yields are on the rise under the influence of rising government bond yields in the United States and are drawing attention to the volume of purchases made by the Bank under the emergency response plan. Bank officials have already publicly stated that a verbal intervention to control yields is preferred by them and is expected to remain so. The economic data in the eurozone are mixed but the figure for factory orders in Germany last week indicated an increase compared to last year despite restrictions and closures. The consumer price index for February, which will be published this coming Friday, may have a significant effect on general inflation expectations.
The Bottom Line: The European Central Bank – ECB is expected to keep its policy intact despite fears of rising yields, given the inflation figure in Germany will attract attention.