Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
President Biden’s $1.9tn fiscal package passed into law
The government’s spending plan was approved by Congress, following the process of budgetary reconciliation - allowing Democratic representatives to make amendments to the bill until all were supportive. Notably, no Republican representatives crossed party lines to support the package.
The legislation - referred to as the pandemic recovery package – includes a payment of $1,400 to American’s earning $75,000 a year or less. The expectation is that the payment will likely feed through into higher retail consumption and domestic savings.
The size of the package, which comes hot on the heels of the $6.55 trillion spent by the US government in 2020, has been called excessive by some commentators given the current health of the US economy but reflects President Biden’s belief that spending too much is less risky than spending too little.
US consumer price inflation (ex food and energy) comes in less than expected
The US consumer price index, which measures the change in average price level for consumers, rose by 1.7% year on year in February and was up by 0.4% on the previous month. The core CPI index, which strips out food and energy prices, increased by 1.3% year on year, lower than the 1.4% expected by economists.
The softer than expected inflation reflected declines in the prices of used vehicles, clothing and transportation services over the month, suggesting the broader inflationary pressures remain muted.
US inflation is being watched particularly closely at moment as many believe Biden’s fiscal spending, together with the base effects from low oil prices last year, could cause a spike in consumer prices. This narrative has manifested in the US 10-year yield increasing by 0.4%, to 1.6%, over the last month.
UK manufacturing and exports fall as new EU relationship suffers teething problems
UK manufacturing production fell by 2.3% in January, significantly more than the 1.0% contraction expected by economists. This news was accompanied by trade data showing that exports of UK goods to the EU fell by 40.7% in January - the sharpest contraction since comparable records began. Imports from the EU were also lower, falling by 28.8%. Having left the European Union in January, this is the first statistical proof point that trade between the UK and its largest trading partner has been materially impacted by the imposition of trade restrictions.
It’s worth noting comments from the Office for National Statistics (ONS) that some of the fall in trade was due to increased stockpiling of goods in December, and that the effects should reverse as teething problems are worked through.
ECB speeds up its bond buying programme citing high government bond yields
Following the ECB monetary policy meeting, President Christine Lagarde explained the decision to "significantly" step up the pace of bond purchases under its Pandemic Emergency Purchase Programme (PEPP) in the coming quarter, highlighting that financial conditions had tightened in an unwarranted manner and threatened to slow the recovery.
This is the first confirmation that central banks are monitoring bond yields and are willing to take action to maintain favourable lending conditions for the government and companies.
Markets
Global equities finished the week up 2.6%, as measured by the MSCI ACWI ($) index, breaking out of a three week losing streak. The increase was fairly even across sectors.
In other asset classes, US yields continued to rise and commodity prices were generally stronger. The Brent Crude Oil price briefly rose above $70 a barrel on Monday – the first time since December 2018 – following news of attacks on Saudi oil facilities.
Look out for next week’s update, where we’ll focus on Chinese retail sales, Euro area inflation and the US Federal Reserve monetary policy meeting.
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