Weekly global market focus
Biden to announce new stimulus package this week
Markets fear Covid cases might be starting a new waveWeekly global market focus — The U.S. markets this week will focus on (1) the Biden administration’s stimulus program that is expected to be announced on Wednesday, (2) Friday’s March payroll report, which is expected to show a large increase of +630,000, (3) whether the U.S. Covid infection rates continue to rise, (4) oil prices as OPEC+ meets on Thursday to discuss production levels for May, and (5) Fedspeak with comments by three Fed officials this week.
The U.S. and European markets this week will be closed for the Good Friday holiday. However, the Fed will be open, and the U.S. government will still release the March U.S. unemployment report on Friday.
The markets will continue to watch the shipping debacle caused by last week’s grounding of a container ship in the Suez Canal. The Suez Canal closure is causing supply chain disruptions and much higher shipping costs for any ships that are routed around the southern tip of Africa. Salvage crews made some progress over the weekend, but it remains unclear when the ship might be freed.
In Europe, the focus remains on the pandemic statistics and the negative impact from the extended lockdowns. The European economic calendar is busy this week. Tuesday’s March Eurozone consumer confidence indicator is expected to show a +2.6 point increase to 96.0, adding to Feb’s +1.9 point increase. Wednesday’s March Eurozone CPI is expected to jump to +1.4% y/y from Feb’s +0.9% due to a lower year-earlier base, but the core CPI is expected to be unchanged from Feb’s at +1.1% y/y.
In China, the focus will be on Tuesday night’s national PMI reports. The consensus is for the March manufacturing PMI to rise +0.6 points to 51.2, reversing most of Feb’s -0.7 point decline. The consensus is for the March non-manufacturing PMI to rise by +0.9 to 52.3, reversing most of Feb’s -1.0 point decline. On Wednesday night, China’s March Caixin manufacturing PMI is expected to show a +0.4 point increase to 51.3, reversing the majority of Feb’s -0.6 point decline.
The markets will also be watching the fall-out from recent sanctions by the U.S. and Europe on Chinese officials over alleged human rights violations in China’s Xinjiang province. Those sanctions provoked China to retaliate with its own sanctions and to encourage boycotts against U.S. and European companies that have barred imported cotton from the Xinjiang province.
Biden to announce new stimulus package this week — President Biden on Wednesday at a stop in Pittsburgh is expected to announce the details of his Build Back Better stimulus program, which is expected to total some $3 trillion of new spending over a decade or more.
The Administration is leaning toward passing an infrastructure bill first with attempted bipartisan support, followed by a second program with child care, health care, and college tuition, according to reporting by Bloomberg. If there isn’t enough bipartisan support for an infrastructure bill, then Democrats are likely to move forward with one massive bill under the budget reconciliation process in the Senate, with passage targeted for this autumn.
The markets remain worried about tax hikes that are expected to include a boost in the corporate tax rate to 28% from 21%, and higher capital gains taxes and marginal tax rates for those making over $400,000.
This week’s announcement of the Biden economic plan will likely keep the markets on edge about very strong economic growth this year, which would put upward pressure on inflation. The new program would also be bearish for T-note prices because of the additional Treasury debt supply that would be necessary to pay for at least part of the plan. The consensus is for U.S. GDP growth this year of +5.7%, which would be the strongest growth rate since 1984.
Markets fear Covid cases might be starting a new wave — The markets are nervously watching the rising U.S. new Covid infection levels amidst fears that a new wave could be starting. The rising number of new Covid cases is being confirmed by a rise in Covid hospitalization rates.
The 7-day average of new U.S. Covid cases bottomed out at a 5-month low of 51,820 on March 14, but has since risen to a 3-week high of 62,163 as of Saturday. On Saturday, the 7-day average of new daily Covid cases rose by +13.6% wk/wk, the highest weekly growth rate since mid-January when cases peaked.
Dr. Fauci, in recent weeks, has been warning that Covid cases could see a resurgence due to the higher transmissibility of Covid variants and the fact that many areas are letting down their guard.
The vaccination numbers have risen sharply in recent weeks, but not fast enough to prevent a renewed rise in new Covid infection cases. The CDC’s Covid Data tracker reports that 28.2% of the U.S. population has received at least one vaccine dose and 15.5% of the population has now been fully vaccinated. Bloomberg reports that a daily average of 2.68 million vaccine doses have been administered in the last week, which amounts to about 0.7% of the total U.S. population.
The Covid pandemic has seen a resurgence in Europe where lockdowns have been extended. Germany last Monday extended its lockdown until April 18. German Chancellor Merkel last Tuesday said that Germany is “in a very, very serious situation,†with Covid “case numbers rising exponentially and intensive-care beds filling up again.”