President Biden announces USD 2tn infrastructure plan

• US President Joe Biden has followed up on his USD 1.9tn pandemic support plan with a USD 2tn plan aimed at the aftermath of the crisis, and his ambition of ‘building back better.’ The plan has a focus on infrastructure and the green economy, with USD 621bn earmarked for transportation and electric vehicles and USD 561bn on green housing, schools, and power and water upgrades, alongside investment in research. Some of the apparent weaknesses highlighted by the disruption of the past year will be directly targeted, including funds to boost the manufacturing of semiconductors - which will also reduce the US’s reliance on China for certain industries. Notably, this is not an ‘unpaid for’ stimulus plan in contrast to the American Rescue Plan, but will be funded through tax hikes. Biden aims to boost corporate tax rates, and to increase the burden on higher earners. Given the narrow advantage Biden’s Democratic Party holds in the Senate – the last stimulus package was only passed with Vice President Kamala Harris’s deciding vote after the chamber voted along party lines – Biden will likely have a struggle to pass this spending plan in its entirety. This is especially the case given that a further USD 1bn in spending plans is expected to be added to that already announced.
• The ADP National Employment Report showed private payrolls jumped by 517,000 jobs this month after rising 176,000 in February, the highest in six months and just slightly below analyst expectations. The leisure and hospitality sector added 169,000 jobs after only 51,000 in February. Construction payrolls rebounded by 32,000 jobs, while hiring at factories was up by 49,000 new roles. The number of Americans filing new claims for unemployment benefits has dropped to the lowest level since the start of the pandemic in March 2020. The strong figures come as the vaccination program in the US moves ahead successfully, and the economy moves towards broader re-opening supported by the USD 1.9tn pandemic relief package, and expectations pent-up consumer demand in the coming months driving growth. All eyes will now be on the upcoming nonfarm payroll figures on Friday that are expected to surge by 647,000 jobs against February’s 379,000
• A report from the US National Association of Realtors showed its Pending Home Sales Index, based on contracts signed in February, fell 10.6% m/m and 0.5% y/y, with contracts falling in all four regions. The supply of existing homes in the US is at a record low, and the 30-year fixed-rate mortgage has risen to a nine-month high of 3.17%. While pent-up demand and a strong economic rebound should support sales, headwinds are coming in the form of tight inventories and multi-year high home prices.
• In 2020 Britain’s gross domestic product fell by 9.8% from 2019, only slightly less than an initial estimate of a 9.9% slump, meaning the economy shrunk by the most in more than three centuries in the last year. The data by the Office for National Statistics (ONS) also showed GDP increased by 1.3% q/q in Q4 2020. Britain’s GDP was 19.5% q/q lower in Q2 2020, during the first lockdown, and grew by almost 17% q/q in Q3 2020, the BoE expects growth of 5% y/y in 2021.  The economy is 7.3% smaller than before the pandemic, in inflation-adjusted terms. Other stats released by the ONS showed the savings ratio rose to 16.1% q/q in Q4 2020 from 14.3% q/q in Q3 2020 and for 2020 as a whole it hit a record high of 16.3% y/y, compared with 6.8% y/y in 2019. Growth in business investment rose by 5.9% q/q in Q4 2020 from the previous three months, while household spending fell by 1.7% q/q in Q4 2020 and government spending, up by almost 7%. In 2020 as whole, the deficit stood at 3.5% of GDP, almost the same as over the previous three years
• Inflation in the 19 countries Euro zone accelerated to 1.3% m/m in March from 0.9% m/m in February. Prices excluding volatile food and energy prices, which the ECB defines as core inflation, slowed to 1% m/m in March from 1.2% m/m a month earlier while an even narrower measure which excludes alcohol and tobacco prices slowed to 0.9% m/m from 1.1% m/m. The ECB has been predicting the spike, warning that inflation may even exceed its 2% target by the end of the year but has promised to look past what it expects to be a temporary jump. It then sees inflation remaining below its target for years to come.
• Canada's economy expanded 0.7% m/m in January, the ninth consecutive month of growth, and most likely grew in February according to Statistics Canada. This is further proof that a recovery from the coronavirus pandemic was stronger than expected. Wholesale trade, manufacturing and oil and gas extraction pushed January growth higher. Retail trade however dipped but should recover in February, when restrictions were lifted, contributing to a likely 0.5% m/m increase according to the statistics body.

Today’s Economic Data and Events

 3:50 JP Tankan Large Manufacturers Index (Q1) Forecast -15

3:50 JP Tankan Large Non-Manufacturers Index (Q1) Forecast -5

4:30 AU Retail Sales (MoM) (Feb) Forecast -1.10%

5:45 CN Caixin Manufacturing PMI (Mar) Forecast 51

11:55 DE German Manufacturing PMI (Mar) Forecast 66.6

12:30 GB Manufacturing PMI (Mar) Forecast 57.9

16:30 US Initial Jobless Claims Forecast 680K

18:00 US ISM Manufacturing PMI (Mar) Forecast 61.3 

Fixed income

• Benchmark bond markets oscillated in reasonably narrow ranges overnight even as US President Joe Biden outlined his USD 2.25trn American Jobs Plan that will focus on infrastructure and skills upgrades. The front end of the curve picked up with 2yr yields adding a bit more than 1bps to close out at 1.60% while the 10yr rose to 1.74%, nearly a 4bps gain on the day.
• Given the infrastructure plan is only at its initial stages we would expect market reaction to be relatively muted until it gains more traction. While the headline numbers appear large, the plan would be spent over many years.
• Emerging market bonds snapped a few days of losses with South African and Turkish 10yrs rising. India was an exception with 10yr yields rising over the course of the trading day.  
• Ooredoo is in the market for benchmark USD 10yr issue with initial pricing at midswaps +110-115bps.

FX

• Dollar weakness took hold from the middle of the session onward overnight as risk appetite took hold of markets. The DXY index slipped to 93.232, a marginal decline of 0.07%. EURUSD snapped a few days of losses to gain 0.1% and close out at 1.173 while GBPUSD also ended the day higher, gaining 0.3% to settle at 1.3783.
• USDCAD was the outperformer in the commodity currency space with the pair dropping by almost 0.6% to 1.2562, bolstered by better than expected GDP data for the start of the year. Both the antipodean currencies appreciated against the USD but only marginally.

Equities

• The S&P 500 and the NASDAQ were some of the only gainers among the major global equity indices yesterday. Bolstered by President Biden’s infrastructure spending plans, the indices gained 0.4% and 1.5%, while the Dow Jones slipped -0.3%.
• S&P futures are edging higher still this morning, as are the major Asian indices, most of which also saw losses yesterday. The Shanghai Composite closed down -0.4% and the Nikkei -0.9%, but these are currently trading up 0.3% and 1.2% respectively.
• In Europe, the FTSE 100 lost -0.9% yesterday, with the poorly received Deliveroo IPO weighing on sentiment generally. The benchmark UK index closed the quarter up 3.9% nevertheless.

Commodities

• Oil prices sold off ahead of today’s OPEC+ meeting. Brent futures fell 0.9% to close at USD 63.54/b, WTI saw an outsized drop of 2.3% to settle at USD 59.16/b while Murban closed down 2.2% at USD 61.71/b. We are anticipating a roll over of OPEC+’s existing production levels at today’s meeting but won’t rule out a surprise deeper cut provided by Saudi Arabia.
• Inventory data from the US EIA showed a modest draw in crude stocks last week, just 876k bbl along with a 1.7m bbl drop in gasoline inventories. Crude production was up by 100k b/d to 11.1m b/d, its highest level so far this year, while product supplied was up by a strong 1.6m b/d to 20.3m b/d.

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