LONDON, March 1 (Reuters) – The publication of monthly employment data in the United States, the hearing in the American Congress of the head of the Federal Reserve, “Super Tuesday” in view of the American presidential election and the President Joe Biden’s State of the Union speech, will mark a series of events concentrated in a few days across the Atlantic.
On the Old Continent, the monetary policy meeting of the European Central Bank (ECB) and the British budget will be the dominant subjects, while in Asia, a recovery plan is hoped for at the end of the annual meeting of the Chinese Parliament , in a context of crisis in the world’s second largest economy.
Overview of the market outlook in the coming days:
1/ EMPLOYMENT, AI AND FED RATES
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The quarterly corporate results season in the United States has barely ended, investors will not have time to breathe: a hearing of the President of the American Federal Reserve (Fed), Jerome Powell, is scheduled for Wednesday before the Commission of Finance of the House of Representatives, and another Thursday before the Senate Banking Committee. The same day, President Joe Biden will deliver his State of the Union address.
US employment figures for February will then be released on Friday. Signs of labor market resistance to the Fed’s monetary tightening, combined with restrictive comments from several US bank officials, could end up dampening investor enthusiasm, which is fueled by the potential of artificial intelligence. (IA), whose enthusiasm allowed shares to reach record levels.
The rise in bond yields in the United States, if it continues, could therefore have an impact on stocks. The ten-year Treasury rate has increased by 40 basis points since the start of the year.
Economists polled by Reuters expect the U.S. economy to create 188,000 new jobs in February, following a stratospheric 353,000 jobs created in January.
2/ A “SUPER TUESDAY” WHICH DIVIDES IN THE USA
Tuesday’s “Super Tuesday”, characterized by the simultaneous vote of a large number of American states to decide between the candidates of the Democratic Party and the Republican Party for the presidential election in November, will highlight the political divisions and the challenges facing America. Joe Biden and Donald Trump are the favorites in their respective camps.
The debt ceiling issue is also back. The US Congress on Thursday approved a short-term interim measure to avoid a partial shutdown of the federal administration, but only for a week.
The bond market absorbed $169 billion in debt issuance from the Treasury during the week with relative ease. But the polarization of policies on the finances of the American administration is a reminder that the United States’ debt now amounts to 34,000 billion dollars and that Treasury bonds risk suffering.
However, in an election year, it is unlikely that we will see aggressive fiscal consolidation.
3/ THE CHINESE PARLIAMENT IN THE SIGHTS OF THE MARKET
The opening Tuesday in China of the annual session of the National People’s Congress, the Chinese Parliament, fuels high hopes that the world’s second largest economy will adopt new recovery measures while its key real estate sector is in the doldrums , consumption at half mast and the economy in deflation.
The issue this time goes beyond setting the traditional gross domestic product (GDP) growth objective, which will undoubtedly still be 5% for this year.
Chinese stocks recovered after hitting a five-year low in early February, ending a six-month run in the red and recording their best monthly performance since late 2022. Stock purchases by authorities and tightening regulations on short selling were the main drivers of this recovery.
But it’s hard to forget that the fall, which took stocks to five-year lows, was linked to disappointment over the lack of real support from Beijing. The market should therefore be very attentive to what happens in the days to come.
4/ STILL TOO EARLY FOR THE ECB?
The ECB meets on Thursday and the focus will be on what central bank officials say about whether it is too early to discuss a rate cut or whether monetary easing is now possible.
The European Central Bank has left its key rates unchanged since September but at the same time rejected the idea of an imminent first cut, even warning against optimism that it considers exaggerated on the part of the markets.
The institution notes that while overall inflation is falling, wage pressures remain high.
The markets, which at the start of the year were still counting on a cumulative drop in the ECB’s deposit rate of 150 basis points by the end of 2024, are now only anticipating a reduction of around 90 points, with a first drop expected in June.
Traders, however, continue to believe that the ECB could cut rates before the Fed given the relative weakness of the euro zone economy.
In general, the Frankfurt institution intervenes after the American central bank.
5/ REDUCED BUDGETARY MANEUVER IN THE UNITED KINGDOM
British Finance Minister Jeremy Hunt, who will present the budget on Wednesday, will face the difficult equation of announcing tax cuts without causing turbulence on the bond markets. This would support the campaign of Prime Minister Rishi Sunak, from the Conservative Party, who is well behind in the polls by the Labor Party, in view of the legislative elections to be held by January 2025.
The specter of the crisis linked to the “mini-budget” of the short-lived Prime Minister Liz Truss is still in everyone’s memory and the budgetary outlook has not improved since, which leaves little room for maneuver for Jeremy Hunt.
This does not prevent the media from speculating on possible reductions in income tax or a further reduction in the tax for social security (National Insurance). Investors, for their part, expect Jeremy Hunt to use most, if not all, of the budgetary “room to maneuver” he has.
(Writing by Ira Iosebashvili in New York, Jamie McGeever in Orlando, Kevin Buckland in Tokyo, Li Gu in Shanghai, and Dhara Ranasinghe and William Schomberg in London; compiled by Dhara Ranasinghe; graphics by Prinz Magtulis, Kripa Jayaram and Kevin Yao; version French Claude Chendjou, edited by Kate Entringer)
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