Biden goes big with 1.9 trillion fiscal package

Blog
Friday 15th January 2021

Biden goes big with 1.9 trillion fiscal package

Blog
Friday 15th January 2021
Written by Chris Lioutas

Markets:

  • A mixed week for equity markets by region and by time, Asian markets performing strongly whilst all other markets weakened earlier in the week due to Covid and US political concerns before rising later in the week on the back of a very large proposed US fiscal package.
  • The oil price rose also on the back of the proposed US fiscal package which should support the US economic recovery thus leading to increased demand for oil. The higher comes after strong rises last week following Saudi Arabia’s announcement that it will make output cuts of 1 million barrels per day in February and March. The Saudis took the hit either to help persuade most producers to hold the line on output and/or to appease the Russians and avoid another disagreement like we saw in March 2020.
  • The Australian dollar finished the week flat against the US dollar at 77c. The Aussie has moved strongly higher over the last few weeks due to a skyrocketing iron ore price which has almost hit US$170 a tonne, due to significant Chinese demand and weak supply from Brazil. Better virus outcomes may also be supporting the Aussie dollar.

Economics:

  • Australian retail trade rose by 7.1% in November to a new record high, driven by a huge 22.4% lift in spending in Victoria as spending rebounded on the winding back of restrictions. Retail trade is running around 14% higher than where it was pre-Covid. Clothing & footwear and department stores saw the largest rises.
  • The number of Australian job vacancies lifted by more than 23% (48,000) over the 3 months to the end of November. This follows a record rise of 77,000 in the previous quarter. The level of vacancies is now higher than they were in February 2020, pre-Covid. Vacancies rose more in the private sector than the public sector. CBA bank internal data shows the number of bank accounts receiving JobSeeker continues to fall.
  • US weekly jobless report showed that the number of Americans filing first-time claims for unemployment benefits increased more than expected last week. Prolonged lockdowns and restrictions taking their toll, especially whilst government stimulus has been held up.
  • The German economy shrank by a smaller than expected 5% in 2020 as a strong state response helped limit the havoc caused by Covid-19.

Politics:

  • The US Congress has approved articles of impeachment for President Trump. The approval for the impeachment now sits with the Senate. Given Joe Biden will be inaugurated next week, the only basis for the impeachment proceeding from here is to ensure President Trump can’t ever hold office again. Fair to say there’s plenty more Congress and the Senate could be doing with their spare time.
  • President-Elect Joe Biden unveiled a monster US$1.9 trillion stimulus package proposal which should pass the Senate. The package includes $1 trillion in relief for families via direct payments and unemployment insurance, $440 billion aid to businesses and communities, $350 billion to support state and local governments, and $160 billion in funding for vaccination and testing health programs. This is on top of the almost US$1 trillion package passed more recently.
  • With Chinese demand for iron ore skyrocketing as their economy recovers, and with Australia accounting for more than half of iron ore shipments globally, it’s only a matter of time before the Chinese look to diversify their iron ore supply. The government has pledged to slash its reliance on third parties like Australia for iron ore, with plans to get at least 45% of its input from sources it controls by 2025. Timeframe looks too tight, but with Brazil production likely to increase at some point, it’s hard not to take them seriously.
  • Issues with vaccine deployment have arisen while restrictions have increased throughout Europe, with France enacting a nationwide curfew from 6pm to 6am for 15 days. Interestingly, major US virus hotspot states like New York and Chicago, who saw the most severe lockdowns, now have their Governors calling for everything to immediately open…..Too much vaccine demand and not enough early supply, along with too much bureaucracy, some reported adverse reactions, and reports from some US hospitals that larger numbers of front-line healthcare workers are refusing the vaccine, aren’t helping the situation. In contrast, reports have indicated that 20% of the Israeli population has already been vaccinated.
  • Social media tech giants came under pressure this week following a coordinated effort to de-platform and de-list President Trump, along with right-leaning businesses and private users. Hardly surprising given their unfettered power and the legal protections these companies receive under Section 230. Censorship is never a good thing, with many calling it a dangerous precedent. Funnily enough, Twitter found itself shut down in Uganda, after Twitter took it upon themself to censor politicians during the Ugandan elections.

Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972


Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a factual nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns.