It will be another busy week for the financial markets, with potentially big moves in currencies and equities. On Wednesday, U.S. President Joe Biden will outline his $3-trillion infrastructure plan, which also happens to be the month and quarter end. U.S. non-farm payrolls are scheduled for release on Friday, but a number of markets, including in the U.S., will be closed for the Good Friday holiday. Although less participation means there could be more consolidation, that’s unlikely to happen this week as investors brace for the strongest jobs report in at least five months.
March has been a good month to be long U.S. dollars. Thanks to the country’s aggressive vaccination program, consumers and businesses are more optimistic and economic activity is improving. With 90% of adults eligible to get a coronavirus vaccine within the next three weeks at a vaccination site within five miles of where they live, there’s much reason for hope. Investors will look at Friday’s jobs report and see the possibilities of even stronger labor market recovery in the months of ahead.
The only major risk – and it’s a big one – is Biden’s plan to fund infrastructure spending with big tax hikes. There’s talk of $1 trillion to $3 trillion in new taxes, and the larger the actual proposal, the more pressure on equities. Unwinding the 2017 corporate tax cut that lowered the rate from 35% to 21% is low lying fruit, but top-end personal income tax rates could also increase. With stocks trading near record highs, it won’t take much for profit-taking to send equities and high-beta currencies tumbling lower. With that said, a correction in stocks and a good jobs number should be positive for the U.S. dollar. Still Biden’s speech, month/quarter end, non-farm payrolls and Good Friday are all potential catalysts for big moves in currencies this week.
The euro is still the worst-performing currency. With coronavirus cases on the rise and vaccinations moving slowly, Germany and France are considering tighter restrictions. German health officials warn that the third wave could be the worst, prompting government officials to consider nationwide curfews. At some point vaccinations in Europe will catch up to the U.S. and the UK, but that may be in the distant future. For now, the Eurozone will bear the consequences of rising cases and widespread months-long lockdowns. It is only a matter of time before Eurozone data takes a turn for the worse. Eurozone confidence and German CPI numbers are due for release tomorrow. Sterling weakened against the greenback following lower mortgage approvals.
The Canadian and Australian dollars sold off slightly, while the New Zealand dollar was unchanged. Much of these moves had to do with the rise in the U.S. dollar, but in Canada’s case, the loonie was also sold after Quebec halted the use of AstraZeneca’s vaccine for people under 55. Prince Edward Island stopped use of the shot for those ages 18 to 29. There’s been a lot of skepticism around AstraZeneca (NASDAQ:AZN), and news like this will increase vaccine hesitancy in Canada and abroad.
The ship lodged in the Suez Canal is finally free and while oil prices initially fell on the news, they recovered to end the day higher.