Market situation:
Stock markets recorded gains last week as certain indices reached new highs. Bond markets on the other hand have taken the Fed’s average inflation target seriously and the 10-year US government bond has risen to 1.7 percent (1.67 percent this morning). Important economic data along with many sentiment figures in various countries in the coming week. It should be noted that these data will not fully capture the recent jump in the number of people infected with corona and the tougher restrictions that have been applied in some countries.
Concerns about hurting demand have led to a significant drop in oil prices (WTI barrel price is trading at 61.2, down 6.4 percent from last week). The dollar continued to recover from the low level at which it traded last week, the dollar against the euro traded at 1.1892 this morning. In Alaska, talks between senior officials in the United States and China governments were held in a harsh manner last week, evidence that patience is needed to overcome the deep gaps between the two countries.
Economic events log:
Crimson:
United States – Sales of existing homes for February.
Third:
UK – Weekly average wage for January, unemployment rate for January.
Fourth:
United States-February Sustainable Product Orders, Marchit’s Purchasing Managers’ Index for March.
Eurozone – Markit’s Purchasing Managers’ Index for March.
United Kingdom – Consumer Price Index for February, Markit’s Purchasing Managers’ Index for March.
Japan – Jibun Bank Purchasing Managers’ Index.
Fifth:
United States – GDP data for the 4th quarter.
France – Business Security Index for March.
sixth:
United States – University of Michigan Consumer Sentiment for March.
Germany – IFO Index for March.
The Fed: Continuing the same plan despite a better economic outlook.
The Fed’s Open Market Committee has unanimously decided to leave the interest rate unchanged and the rate of purchases unchanged as well. Committee members also noted an improved forecast for economic growth in their official statement and also in the summary of their economic forecasts – SEP. Fed members now anticipate 6.5 percent growth in the United States economy this year along with a shortening of the economy’s schedule to reach full employment. The improved forecast also affected their forecast for inflation.
At the same time the committee still expects interest rates to remain unchanged until the end of 2023, a clear sign that the Fed’s new framework policy for inflation is being taken seriously by them. Markets will likely still continue to price imaginary interest rate hikes on a much later schedule.
Bottom line: The Fed continues to hold the position that there is no reason for change.
Macro data in the United States: The latest stimulus package will start to take effect
This week’s economic data will provide updates on a variety of sectors such as: housing, purchasing managers’ indices, durable goods orders and consumer sentiment. Cloudy weather adversely affected macro data during February. The housing market is expected to point to a slowdown in light of rising mortgage rates along with the fact that rising house prices have hurt consumers’ ability to buy homes and are expected to adversely affect existing and new home sales.
Investors expect the preliminary data from Markit’s Purchasing Managers’ Index to point to improvement as the overall trend of acceleration moderates. Finally, the University of Michigan’s consumer confidence data may point to a slight improvement in light of the fact that the incentive program checks and the progress of the vaccination campaign will give a boost to consumer confidence now and in the future.
The Bottom Line: Continued economic recovery but the trend of acceleration is expected to moderate.
Data in the Eurozone: Purchasing Managers’ indices will continue to express the restrictions due to the virus
Due to the fact that the number of people infected with the corona virus is rising again in many countries on the continent during March along with the fact that the rate of vaccinators is still low, the procurement managers’ indices to be published may indicate a continued contraction during March with a reading below 50 (48.8 in February). The previous months show an ongoing split between the services sector and the manufacturing sector. With the fact that the restrictions are particularly affecting the services sector and the manufacturing sector is particularly favorably affected by the economic recovery in China it can be assumed that the split will not stop in the near future.
The IFO Business Security Index in Germany will offer a more detailed forecast of the performance of various sectors in the largest European economy (to be published on Friday). The impressive economic recovery in the German manufacturing sector has been the main reason why the German economy has managed to hold up relatively well over the last few months.
The Bottom Line: With the recent restrictions coming into force, the economic situation in Europe has remained fragile. Markets are likely to look beyond weakness in the short term and expect a stronger rebound in the summer months.
China: Moving forward towards quality growth
The NPC conference in China ended earlier this month. China has decided to adopt a growth target of over 6 percent for 2021, below market expectations. China’s attention is shifting from short – term growth to desirable structural changes such as technological innovation, urban development, green growth and more. In the last 14th program in number for the years 2021-205 China has not set quantitative growth targets. They noted that the economy will continue to run at a reasonable pace and set annual targets based on specific conditions.
This is a significant change compared to Plan 13 in number for the years 2016-2020 when China said it would work to achieve high medium-term growth of over 6.5 percent. While the new plan may sacrifice short-term growth it is likely to increase China’s long-term competitiveness.
The Bottom Line: We remain positive regarding the Chinese stock market in light of good economic recovery, expanding monetary policy and fiscal initiatives encouraging growth.
Eurozone: Vaccines and the economic forecast
There is a significant difference in the progress of the vaccination campaign between different countries. Israel has already reached a state of herd immunity. In the UK more than a third of the population has been vaccinated and in the United States more than 20 per cent of the population. The eurozone is still lagging behind with less than 10 percent of the population vaccinated in most countries as of mid-March. Part of the delay is due to Europe’s caution regarding vaccines and part of a shortage of existing vaccines.
While the cautious approach to vaccines is intended to build public confidence, the shortage of vaccines is due to technical difficulties and disruptions in production lines. Political pressure to speed up the pace of the vaccination campaign in the eurozone is high. The ongoing restrictions are taking a heavy toll and are expected to weigh on and delay the economic recovery later this year.
The Bottom Line: Acceleration in the Eurozone vaccination campaign is necessary to prevent economic deterioration. The euro dollar exchange rate is expected to be a key barometer of the economic implications of the vaccination campaign.