Easter Optimism

April 01, 2021
  •  Biden released details of his spending bill yesterday, and it drew immediate criticism
  • France imposing new mobility restrictions for four weeks
  • Housing prices in Australia and New Zealand continue to surge
  • China's unofficial manufacturing PMI disappointed in March, but not a significant setback

Risk appetite is returning ahead of the Easter holidays. Equity markets are broadly higher, with gains of around 0.8% for EM Asian indices, the Nikkei adding 0.7%, and the EuroStoxx 600 up 0.5%. U.S. futures are pointing to a small positive open. Fixed income markets are stable after U.S. President Biden announced his fiscal plan, mostly as expected. The 10-year yield is at 1.72%. The dollar is mixed, weakening against EM currencies but slightly firmer against majors. Oil is bouncing back ahead of the OPEC meeting, with Brent up 1.5% to $63.7 per barrel.


Biden released details of his spending bill yesterday, and it drew immediate criticism. The plan spans eight years, worth $2.25 tln, focusing on infrastructure and helping the most vulnerable. As expected, the funding element was especially controversial with Republicans, characterized as a "Trojan horse" for tax increases by GOP leader Mitch McConnell. Corporate tax would increase from 21% to 28% and higher rates for foreign earnings from 13% to 21% ("global minimum tax"). It's unclear what path the bill will take now, but passing it with Republican support will not happen. One possibility is to break the bill into different parts and try to approve the less controversial ones.

There was little reaction in U.S. fixed income markets to the announcement, given that most of it had already been leaked. The 10-year yield backed off further from recent highs but remains above 1.70%. The 2- to 10-year spread remains stable around 155 bps, while the 10-year real yield has been rangebound for the last few weeks.

ADP employment data released yesterday showed the largest increase in jobs in six months. The headline figure came in at 517K, lower than 550K expected, but a large improvement over the 176K figure from February (which was upwardly revised by about 60K). Most of the increase came from the leisure and hospitality sector, though transport also added a significant number as restrictions begin to ease across the country. March jobs data will be released tomorrow. Consensus sees 643k jobs added vs. 379k in February, with unemployment falling a couple of ticks to 6.0%. Average hourly earnings are expected to slow to 4.5% y/y from 5.3% in February, while average weekly hours are expected to rise a tick 34.7.

Canada's January GDP came in at -2.3%, slightly better than expected. The monthly figure was +0.7%, up from 0.1% in the previous month. Manufacturing outperformed (up 1.8%) on the month, though construction was also strong (+1.4%). Separately, industrial production rose 2.6% in February, a bit higher than expected, and a significant improvement over the 2.0% in January.


France is imposing new mobility restrictions for four weeks. The measures will be nationwide and start on Saturday. It will include closing schools, restriction travel across regions, and a 7 PM curfew. This follows recent restrictions in Italy. More broadly, the vaccine situation will surely start improving after recent measures, but it doesn't change the very unfavorable picture of Europe when compared to the UK or U.S. The poor vaccine outcome will continue to weigh on the region's assets, but much of it could already have been priced in. The euro is down nearly 5% against sterling this year and down 4% against the dollar.


Housing prices in Australia and New Zealand continue to surge. In Australia, March's increase was the fastest in 32 years, with the CoreLogic index accelerating to 2.8% m/m, up from 2.0% in February. It's only a matter of time until officials start enacting more vigorous measures to curve housing prices. The New Zealand index was up 16.1% y/y from 14.5% in the previous month. But new curbs imposed recently will soon take effect and start dampening some of the froth in the sector.

China's unofficial manufacturing PMI disappointed in March. The Caixing index declined slightly on the month to 50.6, well below the 51.4 expected. The figure contradicts the official readings and overall data from China, so we wouldn't put much weight on it.

Japan's Tankan survey came in higher than expected for Q1. Sentiment improved across the board but was more concentrated in manufacturing and larger companies. The survey suggests an increase of 3% in capital expenditure plans in the 2021 fiscal year but primarily oriented towards the export sector.

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