New stimulus package, OPEC and the US dollar - what's next?
On the last day of the first quarter of this year, financial markets will evaluate the next stimulus package for the US economy, the first stage of which will be presented today by US President Joe Biden in Pittsburgh.
According to Bloomberg, the estimated amount of stimulus will amount to $ 2.25 trillion, which is planned to be spent on significant improvement of the country's infrastructure in the coming years: 650 billion - on repair and construction of roads, about 175 billion - on electrification of cars in the next eight years, 300 billion - on the transition to alternative energy sources, as well as a number of other points.
In addition, the US administration must present a plan to increase taxes for companies from 21% to 28%, as well as an increased tax rate of 39.6% for citizens who earn more than $ 400,000 a year. As we wrote earlier, the main point will be whether investors will assess the fact of increasing corporate taxes for short-term risks of US stocks, or the effect will be significantly stretched over time. We believe that this fact may put pressure on the major US stock indices, which are currently trading close to their historical highs.
In addition to the US President's speech, the rebalancing of investment portfolios by fund managers and a new round of fears on the part of investors in risky assets regarding the growth of US Treasury bond yields may also add volatility in the markets at the end of the month. The day before, the yield on 10-year Treasuries reached a new local maximum of 1.77%.
The rate of recovery of the American economy after the pandemic, as well as the rate of vaccination of the population, is now well ahead of the European region, and the market continues to pledge faster monetary tightening by the Federal Reserve to potentially combat inflationary pressures. While in Europe Germany, France and a number of other countries are extending the widespread anticoid restrictions and are experiencing serious problems with the AstraZeneca vaccine (NASDAQ: AZN, LON: AZN), in the United States, according to Joe Biden, by April 19, every adult can receive their dose of the vaccine.
The above could not but affect the dynamics of the US dollar against a basket of major currencies of the G-6 countries. In the second half of March, participants in the foreign exchange market staged a real rally for the dollar. The day before, the EUR / USD pair dropped to nearly 1.1700, the lowest level since November last year. The Japanese yen (USD / JPY) experienced the strongest sell-off against the dollar in March, losing nearly 4%.
In our opinion, in the short-term horizon, the American currency (DXY) will continue to strengthen until the information background improves regarding the return of the EU economy to normal functioning. The next strong resistance level for the dollar index will be the level of 93.95 p.
Also, the end of this week will be important for the oil market. After the incident in the Suez Canal with the ship Ever Given and the drop in oil prices due to reduced demand due to new antiquated restrictions in Europe, market participants believe that on April 1, the OPEC + monitoring committee will decide to extend the agreement on oil production at current levels. ...
At the time of this writing, the price of the North Sea Brent brand is $ 64.5, the American WTI is trading near the $ 61 level. We believe that the extension of the agreement to cut production volumes has already been relatively taken into account by market participants in current prices, and further dynamics of the price of "black gold" will, again, be determined by the news about the pace of economic recovery in the European region.
Now a little about the cryptocurrency market. Quite an interesting announcement was made the day before by the PayPal payment system (NASDAQ: PYPL). The company said it has provided access to US customers to pay for millions of goods around the world using cryptocurrencies. According to the CEO of PayPal, this step will allow the introduction of digital currencies into the e-commerce process much faster.
On Wednesday morning, BTC / USD continues to trade at $ 58,000, adding just over 2% the day before. The fact of the introduction of cryptocurrencies into their services for paying for goods from such payment systems as Mastercard (NYSE: MA), Visa (NYSE: V), and now PayPal, indicates a significant increase in the popularity of cryptocurrencies among the average consumer, however, we warn investors against purchases at current price levels. We note a decrease in the rate of the growing trend in bitcoin, as well as a general overbought asset on a monthly time frame.