This week the difficulty of trying to pass President Biden's $1.8tn stimulus package through Congress is likely to become increasingly apparent. Many Senate republicans are already balking at the price tag and contents, adding more weight to the view of an eventual passage of a sub $1tn package of measures (see my explanation of why Republican support is needed). One of the most contentious issues is likely to be a federally mandated $15 minimum wage.
At least, the Senate won't be juggling the impeachment of Donald Trump, at the same time as debating administration nominations and President Biden's fiscal proposal, with the impeachment trial now scheduled for the week of February 8.
The contrast between US and European data at the end of last week was clear in the release of Markit purchasing managers indices (PMI) data. US PMI's registered strong flash readings for January, with both the manufacturing and services indices rising while in contrast the Eurozone composite PMI fell in January, sliding further into contraction. A disappointing UK retail sales report highlighted the pressure on the UK high street too.
The reality is that many developed economies are struggling into the new year, with a sharp increase in virus cases including new variants, slower than hoped for rollout of vaccines, and vaccine production shortages, all pointing to a later than expected recovery phase.
This week, the Federal Reserve FOMC meeting (Wed) will garner most attention in markets. A few Fed officials mentioned tapering recently, clearly rattling markets, as memories of the 2013 "taper tantrum" came back to the surface. After tamping down on any taper talk Fed Chair Powell is likely remain dovish even as he expresses some optimism on growth. Growth in Q4 will have looked weak and US Q4 GDP (Thu) will be in focus, with most components likely to have slowed. A plethora of earnings releases will continue this week including key releases from the likes of Microsoft, AMD, Tesla, Apple and Facebook.
A dovish FOMC will do no favours for the US dollar (USD), which came under renewed pressure last week. However, risk assets appear to be struggling a little and should risk appetite worsen it could boost the USD, especially given extreme short positioning in the currency. Emerging Market currencies will be particularly vulnerable if any rally in the USD is associated with higher US real yields.
The views expressed here are purely personal and do not represent the views or opinions of Calyon.
The information published at econometer.org and republished at FXstreet.com has been prepared on the basis of publicly available information and other sources believed to be reliable. Whilst all reasonable care is taken to ensure that the facts stated are accurate, the author is not in any way responsible for the accuracy of its contents. The comments are intended to provide clients with information and should not be construed as an offer or solicitation to buy or sell securities, currencies or any other financial product. The author makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products.
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