Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US nonfarm payrolls and survey data show recovery continues at pace
The net change in non-farm payrolls, which measure jobs added or lost over the last month, was recorded at +916,000 in March, compared to expectations of a +660,000 increase. This increase, the largest in seven months, and the upward revision to the number of jobs added in February confirms the narrative that fewer COVID-19 restrictions and vaccination efforts are combining to provide substantive business confidence.
Other data from the US was also supportive, with the ISM manufacturing survey data recorded as hitting heights not seen in nearly four decades. Meanwhile, US consumer confidence survey data, which has been a lagging indicator thus far, showed signs of recovering.
All told, with US unemployment at 6% there is still a significant degree of slack in the economy to be used up before monetary policy makers will move to tighten policy. Nevertheless, the trajectory is clear.
Sharp rebound in Chinese business activity
China’s NBS composite PMI rebounded sharply in March, rising from 51.6 to 55.3, reversing the notable decline in the index during January and February. Despite remaining firmly in expansionary territory, the average for the first quarter is below that of Q4 2020, supporting the narrative that China’s growth momentum is likely to moderate slightly.
Within services, activity was strongly supported by the end of cross regional travel restrictions. In particular, sectors which had been negatively affected by restrictions, including accommodation, leasing and commercial services, have recovered to above 50, the threshold that marks expansion. Construction activity remained strong amid policy support for infrastructure investment.
Within manufacturing, activity was strong. While the demand side was strong both domestically and externally, as the global recovery gathers pace, in contrast, there are cautionary signs on the supply side with supply shortages for certain imported materials, higher import prices and longer delivery times.
Biden administration unveils plan for $2tn infrastructure spending package
The plan would focus on improving public infrastructure in the US over an eight-year period, funded by an increase in corporation taxes. Infrastructure is a narrow term considering the many different issues that the bill seeks to address. Some of the ancillary goals include reducing carbon emissions, reducing inequality, supporting manufacturing and maintaining US technological advantages with respect to China. These initiatives would be paid for an increase in the corporate tax rate from 21% to 28%.
This package, if passed, would further support expectations for an extremely strong US economy in 2021 and higher inflation this year and beyond. Despite this, the market was relatively unmoved by the news, seemingly taking the view that Biden’s slim majority in the US Senate would not be enough to pass the deal as it has been proposed.
Japanese business sentiment recovers despite COVID difficulties
The closely watched Japanese sentiment indicator, the Band of Japan’s Tankan index, rose 15 points to a reading of 5 in Q1, compared to expectations of a -2 reading. Having spent the majority of the first quarter under a national state of emergency – similar to lockdowns in Europe but less severe – the optimism shown by business suggests that Asia’s largest advanced economy will stage a quick recovery from the pandemic.
Japan in particular is well positioned to benefit from robust growth in China and the prospect of large US stimulus seeing as the economy relies heavily on exports of manufacturing goods to other economies.
Strong US economic data was followed by the S&P 500 index breaching new highs and finishing above 4,000 for the first time ever. In contrast to previous market movements, optimism was broad based, with the tech-heavy NASDAQ sharing in the gains over the course of the week, finishing up circa 4%. In London, the highly anticipated Deliveroo IPO was labelled ‘the worst listing in the history of the City of London’. Attributed to issues on corporate governance, the event is a significant blow to hopes that the City might become a destination market for tech companies.
Look out for next week’s update, where we’ll be focusing on China services PMI, the US Federal Reserve meeting and ECB monetary policy meeting.
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