- Efforts to pass the next relief bill will continue this week; US data highlight is ISM manufacturing PMI
- Vaccination disparity continues, but it’s good to see the numbers in Europe continue to rise; eurozone final manufacturing January PMI readings improved modestly; Italian political drama should end this week
- Japan final January manufacturing PMI rose a tick from the preliminary to stand at 49.8; China’s Caixin manufacturing PMI came in lower than expected; India unexpectedly boosted fiscal stimulus, raising fears of fiscal populism; silver is now in the spotlight
The dollar continues to edge higher. What started off as a risk-off bounce last week may have morphed into something bigger, as the dollar is up today even as global equity markets are starting the week off higher. DXY is trading at the highest level since January 18 near 91. It has retraced nearly half of the drop since late November and a break above the 91.428 area would set up a test of the November 23 higher near 92.80. The euro is trading back below $1.21 and a break below $1.2010 would set up a test of its November 23 low near $1.18. Sterling is outperforming and still trading above $1.37, which has pushed the EUR/GBP cross down to new lows just above .88 and could test last April’s low near .8671. USD/JPY is trading at the highest level since November 16 near 105. With Friday’s clean break above 104.50, the pair is on track to test that month’s high near 105.70.
Efforts to pass the next relief bill will continue this week. Reports suggest ten Republican Senators have drawn up a $600 bln alternative to President Biden’s $1.9 trln proposal and have asked for a meeting to discuss. We view this as a trial marker from the Republicans and if horse-trading leads them to split the difference, we are left with a potential package of around $1.25 bln. This is close to what we thought was a reasonable compromise that would be just north of $1 trln, as ten Republican Senators would hit the magic number of 60. However, other reports suggest there is a contingent of Democratic lawmakers that want to forget ahead with or without bipartisan support via the budget reconciliation process that requires only simple majority passage in both houses. Stay tuned.
US data highlight is ISM manufacturing PMI. it’s expected at 60.0 vs. a revised 60.5 (was 60.7) in December. Last week’s 63.8 print for Chicago PMI warns of an upside surprise for ISM, though the two don’t always correlate well. This will be followed by ISM services PMI Wednesday and it’s expected at 56.7 vs. a revised 57.7 (was 57.2) in December. The employment components for both ISM reports will be closely watched for signs of further weakness in the labor market. December construction spending will also be reported today and is expected to rise 0.8% m/m vs. 0.9% in November. Kashkari, Kaplan, and Bostic speak. The Fed delivered a dovish hold last week and we do not expect any of the regional Fed presidents to bring up tapering again for a long, long time.
Vaccination disparity continues, but it’s good to see the numbers in Europe continue to rise. Wires claim that German Chancellor Merkel summoned pharma executives for crisis talks to help speed up delivery. Nearly 100 bln vaccine doses have been administered across 62 countries, according to Bloomberg data, at a rate of 4.2 mln doses a day. Yet the EU’s handling of the vaccine rollout has come under withering criticism, particularly its efforts to restrict shipments outside of the bloc. These developments will have significant political and economic costs in the months ahead.