Marius Paun | London, UK | Senior dealer |Friday 09th April 2021
The Fed Meeting Minutes Show Cautiously Optimistic Approach
The major US indices ended near record highs yesterday with S&P closing to a fresh high and Dow just 24 points from all-time record. The focus this week was on the infrastructure bill and President Biden’s plan to pay for it by hiking the corporate tax rate from 21% currently to 28%. But already a Democrat Senator Joe Manchin broke ranks and said he won’t support the 28% rate and the highest he could accept is 25%…? That was fast.
Meanwhile, the US vaccination is making progress as more than 75% of over 65s has their first shot. The country as a whole is on track to hit 200 million in Biden’s first 100 days in office. On the other hand, new variants are spreading quickly and becoming a cause of concern.
We also had the Fed meeting minutes coming out and showing the economy is still far from the Fed’s goals. The Labor market improved in January and February but remained well below the level seen at the start of last year. Consumer spending seems to be picking up at a faster pace than the last quarter of 2020. Inflation is anticipated to increase this year, albeit temporarily, due to supply constraints.
China released its Caixin Markit PMI for March showing Services at 54.3 versus expectations at 52.1 and 51.5 previously. It’s been reported that business activity and sales rose quicker than the estimated rates and that employment returned to a state of growth. Business confidence has reached the highest level in over a decade with work backlogs now on a rise again after 5 months of stagnation.
Elsewhere, the European Central Bank President Christine Lagarde said the risks associated with the euro area growth are now more balanced and that inflation is likely to go up in the short term. She also acknowledged that early 2022 inflation is expected to fade out. At the same time, the monetary stimulus can be ‘recalibrated to maintain favourable financing conditions.
Back in the UK, a government-backed loan scheme was launched on Tuesday to help companies recover. Specifically, loans ranged from 25,000 to 10 million pounds with the government providing an 80% guarantee. Additionally, there is a grant scheme to help companies restart trading, replacing Covid-19 packages.
The US Oil prices continued to drop reaching a low of $57.64 before rebounding back above $59 as the OPEC decision to increase output continues to take its toll. Gold prices posted a slight rally from a low of $1721.2 to $1742 going into the weekend as a result of renewed weakness in the US dollar. Bitcoin also posted an advance after dropping to within a touching distance of 55,000 marks. It seems another attempt to cross above 60,000 might be on the cards.
Marius Paun | London, UK | Senior dealer | Thursday 01st April 2021
The US President Presents His $2.25 Trillion Infrastructure Plan
We saw quite a selloff last week in the US stock markets with some wild moves, especially on Friday. It appears that Archegos Capital was behind the massive selling which affected many Chinese Big Tech and Viacom. The family office fund which hardly does any reporting was forced to close $15-$20 billion worth of positions that were leveraged to $80 billion making it the largest liquidation in years. It raised some serious question about oversight/regulation.
The US President Joe Biden unveiled his $2.25 trillion infrastructure plan which includes $620 billion for transportation, $580 billion for manufacturing and R&D, $400 billion to improve care for the elderly. To pay for all that the US corporate tax will go up to 28% from 21%. Tax increases will pay for the plan over the next 15 years.
Meanwhile, we heard from the new member of the Fed Christopher Waller who joined in December and said that move in yields is a sign the economy is improving. He spoke about the Fed independence and not financing deficits adding ‘we’re not here to pick winners and losers. He also said ‘we have no role in climate change.
China reported a new lockdown measure in Ruili City in the west of Yunan province after a raft of new coronavirus cases. Residents have been told to stay at home, ‘vehicles and people are prohibited from leaving the city’. On the other hand, China March PMI surprised on the upside, when Manufacturing came in at 51.9 vs 51.2 expected and Services 56.3 vs 52 expected.
European Central Bank President Cristine Lagarde reiterated her intentions to give sufficient notice to the market participants before unwinding the stimulus. Another ECB member Vasiliauskas added that there is no need to change the current size of PEPP purchases and that too much stimulus is less risky than too little. We’ve heard that one before?…
The UK retailers cut prices yet again to counter lockdown. At the same time, UK employers have turned a lot more confident about hiring, making the damage to the economy much less than many initially feared. However, the FTSE100 is slightly down for the week trading around 6750 on Thursday afternoon.
The US Oil is on the back foot at $60.5 per barrel as the Suez Canal reopened after being blocked by the Ever Given ship. The OPEC+ meeting is underway and it is rumoured the members are discussing the option of rolling over and implementing a gradual oil output increase.
Gold prices dropped to a low of $1677 earlier in the week but have since rebounded back above the $1700 mark to trade at $1726 currently.
After the previous week’s pullback to nearly 50,000, Bitcoin is now back on the advance, rallying to just shy of 59,000 level/hurdle.