Concerns Over The Stimulus Package, US Inflation In Focus

Stimulus Package Obstacles

Yesterday’s growth might have been on the modest side due to increasing concerns over the proposed stimulus package and its longer-term effects on the economy. The stimulus would include $1trn as direct payments to taxpayers. The $400bln will be given to fight Covid-19, with the money going towards vaccine production and distribution. Biden argues that more spending is needed, in order to tackle negative effects of the pandemic. Critics say that, because this bill would only help in the very short-run, the longer-term outlook could become gloomier, as inflation may start rising way too quickly. However, the other issue here is, how those households will spend those funds and will that spending actually stimulate the economy? If you are an individual, who has earned up to $75000 in 2019/2020 tax year, you should be entitled to a $1400 check from the government. The amount can increase, if you have dependants. But the issue is that some of these people are not unemployed, as they continue working from home. But others, who will receive the funds, are actually unemployed. And they will “burn” through the government money very quickly, as most of them have outstanding debt and still struggling to find jobs. Especially, people who are involved in hospitality and tourism industries. The only help and relief for them would be, if the government would open up those sectors as quickly as possible. Otherwise, this will be as effective as burning a camp fire with banknotes. It will help you warm up at first, but only for a short period of time.

Inflation Figures On The Agenda

Wednesday will be a busier day than the previous two, as some investors will be keeping a close eye on the economic calendar. China kicked off the day with its MoM and YoY inflation readings for the month of January. The MoM figure improved, going from the previous +0.7% to +1.0%, whereas the YoY figure had gone negative to -0.3%. This the third time since November 2009 that the number had gone negative. Recently, the November 2020 YoY figure was seen coming out at -0.5%. Let’s remind our readers that the PBOC’s inflation target is around +3.0%. It seems that this might be time for the Chinese central bank to go ahead with the rate cut, however, they are willing continue maintaining their rate at +3.85%, at least for a while more. Last time the Bank cut the rate was back in April 2020.

DAX — Technical Outlook

DAX continues to trade above a short-term tentative upside line taken from the low of February 3rd. In addition to that, the German index remains above all of our EMAs on our 4-hour chart, which strengthens the bullish case, at least for now.

NZD/USD — Technical Outlook

After reversing higher at the end of last week, NZD/USD went all the way back to one of its key resistance areas between the 0.7248 and 0.7254 levels, marked by the highs of January 26th and February 9th. At the same time, the pair continues to balance well above its short-term tentative upside support line drawn from the low of January 18th. Although there is a good chance to see further advances in the near-term, to get slightly more comfortable with that idea, we would prefer to wait for a break above the 0.7254 barrier first. Until then, we will stay somewhat bullish.

As For The Rest Of Today’s Events

In addition to the CPIs, the US will deliver the crude oil inventories number for the previous week. The figure measures the change in the number of oil barrels held by commercial US firms. If the number is greater than the previous, then this shows weaker demand. Currently, there is no forecast for that data set, but the past two readings were below zero, implying a rise in demand of crude oil. This might have supported the recent rise in WTI oil prices. Later on, investors will also keep an eye on the US federal budget announcement.

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