One of the biggest stimulus package in US history

Last Thursday, one year into the pandemic, President Biden signed a stimulus package that, at $1.9 trillion – about the size of the GDP of Italy or Brazil – is one of the biggest in US history. The most publicised part of this plan is the $1,400 stimulus checks that most Americans will receive. $350 billion will be devoted to helping states and local authorities, and funds will also be allocated to the fight against the coronavirus. US yields continued to rise after the package was signed, with 10-year Treasury notes rising above 1.6% (1.632% currently). The Dow Jones and S&P 500 set new records and the Nasdaq rebounded after suffering a decline in tech stocks. Last Sunday, Janet Yellen, the first woman to head the US Treasury, said the Fed could tolerate a temporary rise in inflation because it would go hand in hand with the economic recovery fostered by the stimulus package. The Fed is meeting today and once again, inflation will be discussed. The market is expecting the Fed to leave its current policy unchanged. More and more members are also seeing the rise in US yields as a logical sign that the economy is going to pick up, and that, as long as inflation does not rise above 2%, no big changes are to be expected.

As for US employment figures, weekly jobless claims fell by 42,000 to 712,000. The number of job seekers is now 4.144 million, down from 4.337 million last week. Retail sales, on the other hand, fell 3% in February due to the cold snap that hit much of the country. March should see a strong rebound when the Americans receive their checks.

In Europe, the European Central Bank met at the end of last week. It left its key rates unchanged but also announced that it would ramp up its bond buying. The ECB is not, however, as calm as the Fed when it comes to rising yields, even as increases have been more measured here on our side. The situation is, in fact, different on both sides of the Atlantic: in Europe, the pandemic seems to be less under control with the spread of the new variants of the virus and a slower deployment of vaccines. Support for the economy is more moderate and the prospects for an economic recovery weaker than in the United States. In this context, the rate differential between European countries and the United States is increasing and the euro remains below $1.20 (around $1.19 at present).

The pound sterling has remained stable in recent days, quite the contrast compared to the dramatic rise it has seen since the end of last year. The increase crowned an effective vaccination campaign, an improvement in the health situation and a cautious but proactive reopening plan. One statistic, however, has tarnished this picture: the first post-Brexit figures, from between December 2020 and January 2021, show British exports to the EU fell sharply by 40% and imports fell by 22%. On the political side, the UK has unilaterally postponed the introduction of border controls at the Northern Irish border for six months. The European Union has taken legal action for breach of the Brexit deal. Relations remain strained between the two parties.

Otherwise, the main currencies have moved within a fairly restricted range, awaiting the Fed meeting. Only the Swiss franc strengthened against the dollar and the euro. Oil prices continue to increase with the WTI barrel approaching $65, and gold has managed to stay above $1,700 an ounce.