This coming week is heavy on the economic data front. Both the Boj and the Fed are publishing their monetary policy statements and interest rate decisions, on Tuesday and Wednesday respectively. Preliminary U.S and Euro Area first quarter GDP data will be published on Thursday and Friday, while Chinese PMI numbers on Friday help to gauge the expansion of the world’s second largest economy.
We saw volatility in markets last week when President Biden shed light on his proposed tax hikes, in order to finance the American Family Plan. The details about the US $ 1.5 trillion plan aiming to fight poverty, reduce childcare costs, provide free prekindergarten as well as college and establish a national pay leave, will be published this week. Proposed tax hikes are concentrated towards the high-income earners by eliminating certain tax provisions, nearly doubling capital gains tax rate, as well as raising top marginal income tax rate to 39.6% from current 37%. Risk assets, such as equities, reacted with shedding gains while safe havens, including the dollar and Yen, rose.
Preliminary GDP numbers are published later this week for the U.S. and the Euro Area. Thanks to a notably successful vaccine rollout and continuous fiscal stimulus in the States, the divergence in GDP growth between the U.S. and the Euro Area is expected to be remarkable. The Euro Area is projected to shrink -0.8%, with a number of key economies struggling with the third wave of COVID-19. The U.S., on the other hand, is enjoying re-opening, with 50% of the population having received at least one jab, while the taps of both monetary and fiscal stimulus are still flowing. Q1 expansion has been upgraded to 6.5% on an annualized basis by analysts, up from 4.3% in the previous quarter. Atlanta Fed has published a higher estimate of 8.3%, after taking into consideration the latest housing data. Residential real estate, expanding 20% in March to 1.7 million units sold, has gotten a real boost with the mortgage rate touching a historical low of 2.65% in January this year. The rates have inched higher since, currently near 2.97%, and likely to put brakes on the demand at some point.
Retail spending, contributing roughly 30% to GDP, has also been robust in Q1. Notwithstanding negative 2.7% print in February, largely due to a hangover after a jump of 7.7% in January data, retail spending is at historic levels. March numbers jumped 9.8% compared to previous month, bolstered by the direct stimulus checks sent to individuals. Retail spending has likely reached its peak and will start rolling over from here, since the next round of stimulus, once its approved, will be aimed at infrastructure re-building. Retail momentum might carry on for a couple of months, but should stimulus driven consumption subside, retail spending is likely to take a hit. Especially with holes in the labor market as 17 million Americans are still receiving some sort of jobless benefits and U6 unemployment rate at 10%.
S&P 500 was flat with gaining 0.13% to 4180.18, overbought on both daily and weekly charts. Nasdaq-100 shed 0.72% to 13941.44 points. Russell 2000, representing U.S. small and medium companies, rose 0.41%. Russell 2000 has been consolidating since early March, forming a double bottom on the daily chart. The dollar index DXY lost -0.86%, marking this the third consecutive week the Greenback has slid. Gold gained 0.04%, after a hammer candlestick on the weekly chart. Oil futures shed 1.66% ahead of the OPEC meeting this week.
Have a great trading week ahead!