(Reuters) – 1/BIDEN BOOST?
On Wednesday, Joe Biden will be inaugurated as the 46th president of the United States, taking over the leadership of a country racked by COVID-19, deep socio-economic divisions and facing challenges to its global leadership role.
Biden has proposed $1.9 trillion in stimulus with a commitment for $1,400 stimulus checks. Markets have cheered his win but are watching for clarity on spending and tackling the pandemic.
The S&P 500 has risen in the first 100 calendar days of eight out of the last 10 presidential terms, but Biden’s first 100 days may be more fraught than those of his predecessors. He needs to stimulate the economy quickly, but the slender Democrat majority in Congress means the size and timing of the package remain uncertain.
(Graphic: US stocks – First 100 days – https://graphics.reuters.com/USA-STOCKS/ELECTION/nmopaybgqpa/chart.png)
2/ GERMANY AFTER “MUTTI”
After 15 years at the helm of Europe’s largest economy, German Chancellor Angela Merkel bows out this year. The Christian Democratic Union has picked a new leader, Armin Laschet, who is in pole position to become chancellor after September elections.
Laschet, a centrist, narrowly won the vote, beating arch-conservative Friedrich Merz and foreign policy expert Norbert Roettgen. But the party could yet nominate someone else for the chancellorship, for instance Markus Soeder, the popular premier of Bavaria, or health minister Jens Spahn.
For markets, the candidates’ attitudes to fiscal policy is key. Merkel, known affectionately as ‘Mutti’ or mother, jettisoned her party’s antagonism to deficits, spent more and accepted moving toward joint debt to save the euro zone.
Merkel’s successor probably won’t backtrack completely but concerns linger nonetheless about how quickly Germany might pull back to fiscal orthodoxy under a new leader.
(Graphic: Germany economic snapshot – https://fingfx.thomsonreuters.com/gfx/mkt/oakveyzdzvr/Germany%20economic%20snapshot.PNG)
Economies were meant to be turning the corner in January but when “flash” business activity readings from the euro zone, the United States, Japan and Britain emerge on Friday – the first PMIs of 2021 – they may be more sombre than anticipated.
While economic rebound bets still stand, activity curbs and a surging COVID-19 caseload are casting doubt over forecasts.
Having bounced off March troughs, global PMIs have seesawed of late just above 50. Economists expect IHS Markit’s flash Purchasing Managers’ Index (PMI) to show euro zone activity shrinking further after December’s contraction. PMI readings above 50 indicate growth and U.S. and UK surveys showed strong expansion last month, but the big question is whether that continues.
Chinese data on Monday showed industrial output expanding by a forecast-beating 7.3% last month while GDP expanded 2.3% in 2020. But in China too, a surging virus caseload and 28 million people under lockdown is tempering the cheer.
(Graphic: World economic recovery stalling? – https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjqzzkpr/Pasted%20image%201610441365241.png)
4/ECB GLASS HALF-FULL
The European Central Bank meets on Thursday. It unleashed extra stimulus a month ago but the new COVID-19 strain and a relatively slow vaccination pace are again clouding the economic outlook.
Cause for concern? Not so, comments from Christine Lagarde suggest. The ECB chief predicts recovery as COVID subsides, seeing the glass as half-full, not half-empty. Germany’s economy too is cause for optimism, shrinking by a less-than-expected 5% in 2020.
But prolonged lockdowns will hurt. Against this backdrop, markets will want the ECB to signal its commitment to using the full firepower of its 1.85 trillion-euro ($2.24 trillion)emergency bond-buying scheme – something on which policymakers appear to be split.
(Graphic: Renewed surge in COVID-19 cases in Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xklpylkwqvg/Pasted%20image%201610638072070.png)
5/EUROPE CATCHES IPO BUG
In late 2020, New York bustled with initial public offerings from the likes of Airbnb and Doordash in eye-popping valuations and soaring values on their first trading day.
Now Europe is playing catch-up, with several IPOs already off the blocks in January. Bootmaker Dr. Martens kicked off proceedings, followed by online card retailer Moonpig, Poland’s InPost and Germany’s Auto1.
And as 2020 earnings emerge and the equity rally continues, more companies are seen making a bid for listings; among them are Deliveroo, pet care firm IVC Evidensia and German online fashion retailer About You.
(Graphic: Global ECM fees – https://fingfx.thomsonreuters.com/gfx/mkt/nmopabzdjva/global-ecm-fees-hit-all-time-high-in-2020.png)
(Reporting by Ira Iosebashvili in New York, Karin Strohecker, Tommy Wilkes, Dhara Ranasinghe and Abhinav Ramnarayan in London; compiled by Sujata Rao; editing by Susan Fenton)