European and US stock futures are trading higher as investors are optimistic about the third US stimulus package. The House has already given the green light, and now it is the Senate’s turn. Most of the bets are on the positive side—meaning traders are hoping for support for the relief package from the Senate as well.
It is also important to keep in mind that traders are not only feeling optimistic today because of the stimulus relief package. Their optimism is also based on the coronavirus vaccine. President of the United States, Joe Biden, has assured Americans that the US will have a large supply of coronavirus vaccines available to help every individual in the country by the end of May, which boosts confidence.
The most important economic number which is due today is the Private Payroll for the month of February. The data is due at 01:15 PM, London time. We know that not only market players will be watching the data, but also the Fed will be monitoring these critical numbers.
This is because the Federal Reserve’s policy is very much dependent on the US labour market’s health. If we see that life has come back, then there will be no reason for the Fed to leave its monetary policy as it is.
The fact that the coronavirus vaccination process is taking place at high speed in the US, traders are expecting this number to come in much stronger than the previous number. The forecast is for the 225K against the previous reading of 174K. Of course, a strong reading is highly like to push the dollar index higher.
One key thing that we learned from various different Fed members and from their speeches is that there is a possibility that the Fed may be easing off the liquidity gas pedal. This is despite the fact we have witnessed the Federal Reserve Chairman saying that the Fed is not going to change the path of its monetary policy.
However, sometimes, central banks do one thing, and they talk about something else. For instance, the President of the European Central Bank, Christine Lagarde, has given no hint that the bank is going to reduce its stimulus efforts, but if one looks at the recent bond purchase programme, the bank is scaling back from its previous level.
Rishi Sunak and Budget
Over in the UK, all eyes will be on the Chancellor of Exchequer, Rishi Sunak. It is widely expected that the Chancellor will be using the budget to extend a vast package of Covid-19 support, which is likely to last until the end of September. Of course, the Chancellor is betting on a hope that the economy will return from its coronavirus crisis by that time.
The furlough scheme was due to end in April, but now, it will run in its current form until the end of June. After that, it is expected to phase out slowly. The key idea over here is to avoid any cliff-edge by withdrawing the furlough support rapidly.
Obviously, all of this means a higher bill for the Treasury. The Chancellor will maintain the need to balance the budget once the economy is back on the recovery track. Traders expect to see a future tax rise path that could help repair the damage that has occurred to public financing.