Investors will be closely watching the progress of President Joe Biden’s $1.9 trillion pandemic relief plan through Congress this week against a backdrop of concern over what such a large stimulus package could do to inflation and interest rates. Market participants will be focusing on U.S. inflation figures with a report on the consumer price index due out on Wednesday and the producer price index scheduled for Friday. In Europe, the European Central Bank will hold its latest policy meeting on Thursday. Meanwhile, the UK is to publish January growth figures which will reflect a return to a full national lockdown at the start of the year as well as the fallout from Brexit. Here’s what you need to know to start your week.
- Stimulus: a double-edged sword?
After the Senate passed President Joe Biden’s $1.9 trillion stimulus package on Saturday it will move to a vote in the House on Tuesday. After its passage by the House, it will be sent to Biden, who hopes to sign the bill before enhanced jobless benefits expire on March 14.
The pandemic relief package will give a powerful boost to the economic recovery and to the stock market, but optimism has been offset by fears over rising inflation and interest rates.
Investors have taken the recent run-up in bond yields – which has propelled the benchmark 10-year Treasury yield to levels not seen since before the pandemic – as a sign of potentially damaging inflation expectations.
But U.S. Treasury Secretary Janet Yellen indicated Friday that higher long-term Treasury yields were a sign of expectations for a stronger recovery, not of increased inflation concerns.
- S. inflation figures
Investors will be closely watching U.S. inflation figures on Wednesday and Friday amid worries over the potential implications of rising price pressures.
Last week Fed Chairman Jerome Powell said that even if prices jump as anticipated this spring, “I expect that we will be patient,” and not change monetary policies that need to remain supportive until the economy is “very far along the road to recovery”.
This week Fed officials will be in the traditional blackout period ahead of the central bank’s next meeting on March 16-17. Other reports to watch this week include Thursday’s figures on initial jobless claims and an update on consumer sentiment.
- Buy the dip?
With U.S. technology shares sliding, investors are debating whether the decline is an opportunity to buy the dip or a sign of more pain to come for stocks that have driven market gains for years.
Taking advantage of pullbacks in names like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) has been a winning strategy over the last decade.
Some market participants, however, worry the current decline could be longer-lasting than previous dips, as expectations of a robust U.S. economic recovery fuel a shift away from the “stay-at-home” trade towards stocks set to benefit from the economy reopening. Surging bond yields are accelerating that rotation.
Last week the Nasdaq posted its third straight weekly decline, but reversed losses late Friday to end up 1.6% in a sign some bargain-hunters may have already swooped in after a bumpy week.
- ECB meeting
Thursday’s ECB meeting is the main event for the euro zone after extended lockdowns in the first quarter. Policymakers will assess the damage to economic growth against a background of a vaccination rollout that is struggling to gain traction, particularly compared with similar efforts in the UK and the U.S.
ECB head Christine Lagarde will also announce the bank’s new quarterly forecasts at the post policy meeting press conference.
Besides the ECB meeting, the euro zone will release figures for January industrial production on Friday, which are expected to contract.
- UK GDP
The UK is set to release January growth figures on Friday, and it will come as no surprise that these are expected to point to a sharp contraction at the start of the year as the country returned to a full national lockdown and the effects of Brexit hit trade.
GDP growth will take a hit from the closure of several consumer service sectors.
But there will also be a hit from manufacturing as the change in EU trade terms kicked in. The jury is still out on how big the economic impact from the change in trade terms could be.
