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Weekly financial market overview 08.03.-14.03.

News - March 15, 2021

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Konstantins Goluzins, CFA



Head of Asset Management
Phone.: (+371) 6700 0456
E-mail: trust@bib.eu

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Main events of the previous week

In a new forecast released on March 9, the Organization for Economic Co-operation and Development (OECD) expects the global economy to grow 5.6 percent in 2021. This is 1.4 percentage points higher than in the previous forecast. In 2022, global GDP will increase by 4 percent, the report says. The outlook for the global economy has improved significantly thanks to effective campaigns to vaccinate the population against COVID-19 and the allocation of additional financial support measures in some countries. They expect that it will be possible to reach the pre-crisis level by mid-2021. Thus, the growth of US GDP in 2021 will be 6.5 percent, and a year later - 4 percent, analysts at the OECD believe. The German economy in 2021 is expected to grow by 3 percent, follows from the forecast. This is 0.2 percentage points higher than the previous estimate. In 2022, Germany's GDP will increase by 3.7 percent, according to the OECD.

Following the March meeting, the European Central Bank announced its intention to accelerate the redemption of bonds under its PEPP program in order to support the EU economy. In EU recovery is expected to lag behind the US, constrained by the slow rollout of the vaccination campaign and cuts in government aid spending. ECB President Christine Lagarde is optimistic and believes that the ongoing vaccination campaign, along with the gradual easing of containment measures, provided that any further adverse events associated with the pandemic are ruled out, reinforce expectations of a sustained recovery in economic activity throughout 2021. The purchase of assets will lead to a decrease in their yield, which serves as a guideline for borrowing in the entire region. Thus, the ECB will theoretically help reduce the cost of loans for companies that need to invest or borrow to survive the pandemic. The volume of the emergency program of repurchase of assets of the ECB left at the same level - 1.85 trillion euros, and the base interest rate on loans, as expected, kept at zero. The rate on deposits remained at minus 0.5% and the rate on margin loans at 0.25%.

US President Joe Biden signed a $1.9 trillion economic aid package that provides direct, one-time payments of $1,400 for most Americans, as well as tax breaks for millions of families. By signing the bill, Biden promised that the money would help rebuild America's economy and support workers and the middle class. The US government has already adopted three aid packages for citizens and companies affected by the pandemic, totaling more than $5 trillion. Unlike the previous two aid packages, this one has not been voted on by any Republican legislator in either house of Congress. He made it through the House of Representatives and Senate solely thanks to Democratic votes. Direct one-time payments of 1,400 will be received by all Americans who earn less than $75,000 a year, or $150,000 per married couple. This is the majority of the population. Many families with minors will receive additional tax breaks ranging from $3,000 to $3,600 per child - in addition to the already existing deductions. In addition, unemployment benefits of $300 per week will be extended until September. Another $350 billion will go to support states and counties, $130 billion - to open schools, almost $50 billion - for the coronavirus testing and research program and another $14 billion for additional purchases of vaccines. The plan also provides support for small and medium-sized businesses.

Economic data

US. The consumer price index in February rose by 0.4% versus January, while the annual inflation rate was 1.7%. The growth of the core inflation rate, excluding food and energy, amounted to 1.3% y/y in February.

The number of initial jobless claims for the week was registered in the amount of 712 thousand, which is 42 thousand less than the previous week and 13 thousand less than predicted by analysts.

China. The consumer price index in February increased by 0.6% versus January, while the annual deflation amounted to 0.2%.

Key events this week

  • This week, the Fed, the Bank of England and the Bank of Japan will publish their decisions on monetary policy.
  • On Monday, China is to publish data on retail trade, industrial production and unemployment rates for January and February.
  • On Tuesday, data on retail trade and industrial production for February will be released in the United States.
  • On Wednesday, data on the growth of prices in February will be published in the Eurozone, and in the US report on the change in oil reserves for the week will become available.
  • On Thursday, the Eurozone will publish the state of the trade balance in January, and the US will publish data on the number of initial jobless claims for the week.

The information provided herewith has an informative nature. This information cannot be regarded as an offer or recommendation for purchase, storage or sale of securities, or as an investment recommendation, an investment survey or a consultation on investments, or a recommendation to entrust management of your assets to the specific investment manager. The Client is fully aware and undertakes all risks involved in the investment. This information is prepared by AS Baltic International Bank.

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