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The latest improvement of economic circumstances derived from the ongoing vaccination rollout in the United States, Europe and other advanced economies has changed the sentiment to a more positive one as now global economic recovery is expected to improve at a better rate and faster. Yet even though circumstances have seemingly improved, we are also going through a challenging period as we are now facing the losses as a result of the pandemic and tremendous effort will be required by governments and central banks to fill in the gaps. Also at this stage countries cannot focus on their own wellbeing but must consider the world as a whole. Thus the progress must be carried out on a broader scale rather than individually which can be a bit of a pickle. This report will be focusing on the largest economies of the world and the latest developments surrounding them. Also a brief overview of the progress in May individually, will follow.
United States Biden’s $6 trillion budget proposal
In the past week the markets focus shifted to President Biden’s $6 trillion budget proposal. The Biden administration is following up on the plans that they had initially to support the economy extensively. The resources will be allocated to sectors like military, infrastructure, education, scientific research and renewable energy. These sectors are to see increases in the budgets spent so far and the plans tend to stretch-out in the following years with the funds being allocated gradually. Very importantly however the Biden administration has plans to support wealth equality by introducing a new tax code that will focus more on the rich. Of course plans to support environmental protection are also included bringing lower greenhouse gas emissions which could support the green energy sector and could subsequently hurt other sectors or force them to change. Furthermore, the rather large fiscal package will be used to strengthen the US position globally in terms of technology to be able to compete with China which is also on the rise. From an economic perspective some of the US data that stood out for the month of May were the Manufacturing and Services PMI readings which improved drastically with special focus on the later making significant progress. Finally, the Preliminary Core PCE Prices which is a notable measure of inflation increased for Q1 preparing the US economy for a new post pandemic era program. Inflation is constantly in the markets focus with the FED being involved and possibly taking action to gauge inflationary pressures from getting out of proportion. At the moment the greenback seems to stabilize at yearly low levels pushing other major currencies higher.
Europe seeing light at the end of the tunnel
Europe is also finally seeing light at the end of the tunnel as daily confirmed new cases in the block dropped by about two thirds between April 14 and May 19, according to the Wall Street Journal’s World in Data. Even though the block’s delay on vaccine deployment could affect its economic performance in the short to medium term, so far the figures confirm the situation maybe stable. Eurozone’s Preliminary Consumer Confidence for May improved along with its services, economic and industrial sentiment figures. Moreover Germany’s Ifo Business Climate New, Current Conditions and New Expectations improved along with its ZEW Indicators for May but on the contrary its Manufacturing PMI which is rather important dropped. Due to the fact that overall the readings are positive for the block the forecast for the Eurozone economy to return to its pre-pandemic size towards the end of the current year is seemingly in reach. This could be considered a victory as the initial expectations were for the block to move into 2022 before rebounding. The EUR has been strong against the USD in April and in May gaining most of the ground lost in the first three months of the current year.
United Kingdom reopening the economy on 21 June
Britain’s pandemic recovery was also evident as the economy continues to enjoy improved economic performance. Some analysts believe that the combination of the vaccination and the improved economic data is evidence that mark a turning point in terms of business and other important parts of the economy. However despite the positive outlook for the economy UK officials like Prime Minister Boris Johnson and Health Secretary Matt Hancock had doubts over fully reopening the economy on 21 June as the Indian coronavirus variant still represents a great danger to the nation as its rapidly spreading. On May 17 some lockdown measures were relaxed with people allowed to meet indoors for the first time in months while going to pubs and restaurants was also allowed. This had led to a minor increase in new covid-19 cases in various areas in the UK which creates some concern. Even though results on research of the effect of the Indian Variant on the nation will be released in the following weeks, some media sources state that more lockdown measures may be required with a late surge in cases within the UK. From a pure economic perspective Preliminary UK Manufacturing and Services PMI’s improved in May while it’s yearly GDP rate also improved. Finally the GBP seems to remain steady at multiyear high levels against the USD even attempting to breach them to the upside in the past weeks.
China The raw material worries
Even though China has had a head start in the current year being able to control the pandemic within its boundaries some believe the Mainland’s economic performance is flattening at the moment. The most recent NBS Manufacturing PMI for May came in lower than expected enacting a notable reaction by market participants. At the moment various important media sources are making the case that China is currently affected by increasing raw material prices. Moreover, industrial metals like copper prices increased to the point that manufacturers could not raise their selling prices, intensifying worries that a surge in commodity prices could be reducing profits. It is not clear whether this situation will persist or not as in the previous week the Chinese had warned the market to keep raw material prices lower and indeed some of these prices had dropped. Thus we could not underestimate China’s purchasing power and its influence and impact on global prices. The AUD which greatly associates with China as the two countries exchange goods, seems to remain stable against the USD moving with the same range since the start of the year.
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