- Weekly market focus
- Markets gauge Congressional reaction to Biden’s $2.25 trillion infrastructure programÂ
- Friday’s surge in U.S. payrolls sparks fresh economic optimism
- U.S. ISM services index expected to post 2-1/4 year high
- Pandemic statistics stabilize
Weekly market focus — The U.S. markets this week will focus on (1) further reaction in Washington to President Biden’s $2.25 trillion infrastructure plan that was announced last Wednesday, (2) Fed policy as Fed Chair Powell speaks on Thursday at a panel during the IMF spring meeting and as the March 16-17 FOMC meeting minutes are released on Wednesday, (3) whether the pandemic statistics worsen, and (4) this week’s relatively light economic calendar that includes today’s March ISM services index (expected +3.7 to 59.0), Tuesday’s Feb JOLTS job openings (expected -17,000), and Friday’s March PPI.
Markets gauge Congressional reaction to Biden’s $2.25 trillion infrastructure program — The markets this week will carefully watch how Congress reacts to President Biden’s announcement last Wednesday of his $2.25 trillion infrastructure program called the American Jobs Plan. The plan is now in the hands of Congressional Democrats to decide how to formulate legislation.
The markets are also carefully watching to see how Congressional Democrats will formulate corporate tax hikes. The administration is proposing to raise the corporate tax to 28% from 21%, raise the minimum tax on global corporate income, and phase out some $40 billion of fossil-fuel subsidies.
The Biden administration is expected to detail the second part of its massive $4 trillion spending proposal in mid-April. The administration said that proposal would focus on “helping families with the challenges like health care costs, child care, and education.” Spending on that package is expected to be at least partially offset by higher personal taxes on high-income taxpayers.
Speaker Pelosi said last week that she hopes to move the American Jobs Plan through the House by early July, possibly allowing the Senate to pass the bill before its August recess. However, a delay into September or October is certainly possible, particularly if the two packages are paired together as one massive bill.
Friday’s surge in U.S. payrolls sparks fresh economic optimism — The markets come into this week on a strong note about an economic recovery after last Friday’s March payroll report of +916,000 was far above market expectations of +650,000. In addition, Jan payrolls were revised upward by 67,000 to 233,000, and Feb payrolls were revised upward by 89,000 to +379,00.
The markets were closed last Friday for the Good Friday holiday, which means today will be the first time that the markets will have a chance to react to the payroll report.
Payrolls have now grown by a monthly average of +692,000 over the past three months (Jan-March), which bodes well for getting the labor market back to pre-pandemic levels by next year or 2023. However, payrolls still have to rise by another 8.4 million jobs to get back to the pre-pandemic record seen in February 2020.
In another sign of an improvement in the U.S. labor market, last Friday’s March unemployment rate fell -0.2 to a new 1-year low of 6.0%. Still, the unemployment rate has a long way to go before falling to the pre-pandemic record low of 3.5%.
U.S. ISM services index expected to post 2-1/4 year high — The consensus is for today’s Mar ISM services index to show a +3.7 point increase to 59.0, which would more than overcome Feb’s -3.4 decline to 55.3. Confidence is growing in the U.S. service sector as the pandemic fades and business restrictions are dropped. Today’s expected rise to 59.0 would be a 2-1/4 year high and would put the index well above the 55.9 level seen in January 2020 before the pandemic emerged.
Last Thursday’s March ISM index for the manufacturing sector rose by +3.9 points to a 37-year high of 64.7, which was a positive leading indicator for today’s services ISM. The 37-year high in manufacturing confidence indicates that there is near-euphoria in the U.S. manufacturing sector as the pandemic fades and as orders come flooding in from the massive amount of fiscal stimulus that has been seen over the past year.
Pandemic statistics stabilize — The Covid infection statistics have stabilized in the past several days, leading to hope that the U.S. might not be facing a big new wave of Covid infections. New Covid infections rose to a 7-week high of 89,008 on March 24 but have since fallen back to 64,627 on Saturday. The 7-day average of new daily Covid infections reached a 4-week high of 67,521 last Tuesday but has since fallen back to 64,787 by Saturday. The 7-day average of new Covid infections on Saturday grew by only +4% from the week earlier level, which was much better than the +27% growth figure seen last Tuesday.
The markets remain worried about at least a temporary resurgence in Covid infections due to the spread of Covid variants, the relaxation of restrictions in many areas, and increased spring travel. U.S. health officials are hoping that the relatively high vaccination rate can curb the wave before it gets much worse.
According to the CDC’s Covid Data Tracker, 32.0% of the U.S. population has now had at least one vaccine dose, and 18.5% of the U.S. population has been fully vaccinated. Also, the single-dose Johnson & Johnson vaccine has been administered to 4.0 million Americans. Bloomberg reports that an average of 3.08 million doses per day were administered over the past week, which means about 0.9% of the total U.S. population is being vaccinated each day.
