European and US futures are trading higher today as traders are feeling relieved that the recent hedge fund event wasn’t contagious. Having said that, there is still plenty of gloom among investors because of the third wave of coronavirus in Europe. Governments are being forced to take appropriate action and impose tighter restrictions. Coronavirus-related rules are only being relaxed in the country that left the EU, namely the UK.
There is no shortage of action during this week, and traders are going to remain on their toes as the fireworks look set to continue. For instance, on Wednesday, President Biden is likely to highlight his $3 trillion stimulus plan for the economy and how that will boost the country’s infrastructure. Once it gets the green light from all the lawmakers, the stimulus will provide an extra boost to the US economy. Remember, this is not the first time that we will see a stimulus plan geared to improve the county’s infrastructure. We have seen a few episodes of this during the Trump administration, as well. Following this event, we will have the US Non-Farm Payroll data, which is due on the final trading day of the week. The event is going to provide a fresh picture for the US economy, which will be closely looked at by the Fed, and of course, by traders. Although, it is highly possible that we may not get the full reaction on Friday because a large number of markets, including the US market, will be closed for the Good Friday holiday.
The biggest risk for the equity markets, for now, remains a hike in the tax rate; which is inevitable. Biden is likely to turn towards the low-lying fruit, which is reversing the corporate tax rate from 21% to 35%. Of course, nothing is certain, and any increase is very much dependent on the size of the original stimulus package. It is essential to keep in mind that we may not only see the corporate income tax going up but the personal income, especially those on the top end, are likely to get hit. So, it will be difficult for investors to navigate those shores as, on the one hand, they will have a stimulus plan to look at and be optimistic about, but on the other hand, they may see the cost via higher taxes.
In the currency markets, it is safe to say that March has been a good month for the dollar index as we have seen the index shooting towards the stars. Most of the move has been fueled by the massive success of the coronavirus vaccine programme in the US, and 90% of adults will be eligible for vaccines within the next three weeks. This is going to lift the hopes further among investors and bring further improvement for the US economy.
As for the Euro, the currency is still struggling, and this is mainly because the EU hasn’t made much progress on the vaccine front. Coronavirus cases are still on the rise. German officials are warning that the third wave could be the worst, and tighter restrictions are likely to be needed. But the hope is that the vaccination process in Europe will catch up with the US or the UK and that glimmer of hope is keeping the currency traders a bit more optimistic. But for now, the Euro is likely to continue to suffer from the consequences of rising coronavirus cases and a month-long period of lockdown. More pain is likely to be on the cards as the economic data may take a wrong turn.