European Covid-19 situation remains mixed; US and UK infection figures have declined modestly. Denmark and Norway temporarily suspended the AstraZeneca vaccine from use due to cases of blood clot among recently vaccinated individuals. While EMA has reported that nothing yet suggests that the vaccine causes blood clots, the risk is that the news will negatively impact the uptake of the AstraZeneca vaccine. Johnson & Johnson’s vaccine was approved by the EMA this week, but J&J also reported possible supply difficulties with EU deliveries. Read more in our latest Covid-19 Update, 11 March.
While ECB left PEPP envelope unchanged, the pace of the purchases will be increased ‘significantly‘ in Q2, although Lagarde did not specify any particular level for weekly purchases. ECB saw the balance of risks more balanced rather than tilted to the downside, and as such, will focus on limiting the tightening of financial conditions, rather than easing them further. Read more in our ECB review: Flash ECB Research: Using the flexibility already within the PEPP , 11 March.
With the $1900bn stimulus package approved this week, we revise up our US GDP forecasts to 7.5 % for 2021 and 5.3 % for 2022 (from 3.3 % and 3.8 % respectively). Read more here: Research US: Overshooting the old GDP trend path in Q3 21, 10 March.
German state elections to provide signals for September federal elections. State elections in Baden-Württemberg and Rheinland-Pfalz coming up on Sunday will be seen as a bellwether for the German federal elections in September this year (and eventually Angela Merkel’s succession race). Merkel’s ruling CDU/CSU party has recently been hit by a scandal regarding mask procurement practices and a poor showing in the state elections could spell some trouble for the party in the coming months (especially since the CDU/CSU chancellor candidate question remains yet open).
We do not expect policy changes from Fed on Wednesday. Focus will be on the updated “dots” as market has moved forward its pricing of Fed hikes over the past weeks. We expect Fed to continue signalling that it won’t be hiking rates through 2023. Markets will also focus on any comments related to the rise in US real yields, although we do not expect any concrete changes to, for example, QE purchases.
China February Industrial Production figures will rise due to base effect caused by the collapse in industrial production and retail sales a year ago, consensus for industrial production is 32.6 % y/y. As such, the high figure should not be interpreted as a pick-up in Chinese growth momentum. In the US, the previous round of $600 stimulus checks boosted retail sales in January, and it will be interesting to see if the momentum carried on to the February figures, which will be released on Tuesday.
No major changes are expected from Bank of England’s March interim meeting or Bank of Japan’s monetary policy review. BoJ’s ETF pickups are likely to be less frequent but more significant going forward. A widening of the tolerance band on the 0 % 10yr rate target is possible but governor Kuroda has spoken against it and thus we expect no changes for now.
