The week begins with the US on the cusp of securing approval for a $1.9tn stimulus package that Joe Biden hopes will give a fresh jolt to the global recovery. However, any unintended jump in inflation could unsettle markets and this will add emphasis to the week’s US and Chinese data releases. England’s schools reopen in the first stage of the easing of pandemic restrictions and the UK also has GDP, industrial and trade data out. We have earnings from well-known names such as Pearson, Rolls-Royce, Just Eat Takeaway, Morrisons, Standard Life, Legal & General and ITV. The European Central Bank meets to set policy this week, when the recent rise in government bond yields will be in focus.
US stimulus package
Joe Biden is on the brink of securing final approval from Congress for his $1.9tn stimulus bill — a bet that massive fiscal intervention aimed at lower and middle-class families will speed up America’s recovery without overheating the economy.
After the US Senate voted to approve the package on Saturday, the Democrat-controlled House of Representatives is poised to give its final green light to the bill on Tuesday, allowing it to be signed into law by Biden.
Barring any last-minute trouble in the House, where Democrats hold a slim majority, the stimulus legislation will mark a big political victory for Biden, who made it his priority since entering the White House on January 20.
The stimulus bill — known as the American Rescue Plan — represents one of the largest US government interventions in the economy of the post-second world war era, just short of the size of the $2.2tn March 2020 pandemic stimulus but larger than the $787bn recovery plan during the 2009 financial crisis.
US quadrilateral summit
Biden is also poised to hold the first quadrilateral US summit with the leaders of Japan, India and Australia, as the four countries step up co-operation in an effort to counter China’s influence in the Indo-Pacific.
The White House said Biden could hold the virtual meeting this week. Choosing a “quadrilateral security dialogue” meeting for his first summit highlights his plan to reinvigorate the Quad as part of his China strategy.
The Quad emerged in 2007 after the nations co-ordinated relief following the tsunami that devastated Indonesia in 2004. But it later became dormant, partly because of Indian and Australian concerns about provoking China.
Former president Donald Trump resurrected the Quad. While Canberra had long reversed course, India has recently become more active due to rising tension with China, including a deadly border clash in Ladakh last summer.
England returns to school
Almost all English pupils will restart face-to-face lessons on Monday as the UK government’s “road map” to normality begins. Boris Johnson, UK prime minister, hopes this will lead to a lifting of all restrictions from England’s third lockdown by late June.
Israel will also move into the next stage of reopening its economy from lockdown restrictions, with restaurants and cafés that will be allowed to open for full service in the world’s most vaccinated country.
German state elections
Germany has important state elections in Rhineland-Palatinate and Baden-Württemberg this coming Sunday.
The state votes will mark the start of one of the busiest electoral years in recent German history, culminating in Bundestag elections in September that will decide who succeeds Angela Merkel as chancellor.
The Green party are on course to triumph again in the affluent south-western region of Baden-Württemberg. According to one recent poll the party is set to take 35 per cent of the vote — way ahead of any rival and better than their strong result in 2016.
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Earnings reports
Expansion at the studios division of UK broadcaster ITV is likely to be watched closely by investors when it publishes full-year results this week.
ITV Studios, which has played an important part of the push to reduce reliance on the broadcaster’s UK free-to-air channels, makes about 8,000 hours of television through 55 production houses, accounting for more than a third of the FTSE company’s revenues for the first half of 2020.
ITV has previously reported “encouraging signs” that the fourth-quarter advertising revenues will be higher.
Supermarket group Wm Morrison is expected to have benefited from a sales surge during lockdowns, especially over Christmas, as customers shopped more online and splashed out more than usual on festive treats.
Expectations of full-year pre-tax profits for Morrisons in 2021 stand at £420m-£440m, before an anticipated business rates payment of £230m.
Christmas sales at supermarket group Waitrose will also be in focus when owner and operator John Lewis Partnership reports. The employee-owned group has raised its full-year profit guidance for the year to January, having previously predicted either a small loss or a small profit at its half-year earnings in September.
Aerospace group Rolls-Royce is set to suffer heavier cash outflows this year after it warned in January that outflows would be worse than market expectations of £2bn as new variants of Covid-19 prolong the crisis in global aviation.
Tech group Oracle is also expected to benefit as a sustained trend of remote-working drives demand for its cloud services.
Theatre operator AMC Entertainment is expected to post a significant drop in revenue as the pandemic keeps theatres shut.
Strong online retail demand is set to bolster ecommerce retailer JD.com.
Main reports
Monday
Pearson; Direct Line Insurance
Tuesday
Continental; Standard Life Aberdeen; M&G; ITV; TP ICAP;
Wednesday
Franco Nevada; Oracle; Adidas; Lukoil; Cathay Pacific Airways; Pirelli; Legal & General; Tod’s; Prysmiam; Just Eat Takeaway; Inditex; AMC Entertainment; Bumble; National Express
Thursday
JD.com; DocuSign; Assicurazioni Generali; Balfour Beatty; Morrisons; John Lewis & Partners; Rolls-Royce; Savills; WPP
Friday
AIA Group; EssilorLuxottica
Appearances
Bank of England governor Andrew Bailey will address the outlook for the economy on Monday during a Resolution Foundation think-tank speech, his first since chancellor Rishi Sunak’s Budget last week.
Sunak is scheduled to testify to parliament’s treasury committee about the budget later in the week.
Bank of Japan deputy governor Masayoshi Amamiya — one of the main architects of yield-curve control — also speaks on Monday.
Economic data and central banks
Inflation remains the hot topic and the US and China have important data points out this week.
Inflationary pressures look set to rise as the US economic recovery gains traction and coronavirus restrictions decline. Analysts surveyed by Bloomberg have raised their year-on-year expectations for February’s US consumer price index to 1.7 per cent.
This adds to the speculation that the Fed could well hit its new average 2 per cent inflation target in 2022, with a slight “overshoot” the following year, meaning in turn that the first rate rise could come as early as 2023.
Inflation data in China, which come a day before the country’s National People Congress concludes in Beijing, will be closely watched by traders and investors looking for signs of when an adjustment to the country’s main interest rate policy can be expected following a rapid economic recovery from the coronavirus pandemic.
Economists polled by Bloomberg forecast a 0.3 per cent year-on-year decline in the consumer price index in February, unchanged from a month earlier. CPI in China turned negative in November for the first time in more than a decade.
China’s producer price index — a measure of factory gate prices — returned to positive territory in January, the first time since the initial coronavirus outbreak. This release is expected to show a rise of 1.4 per cent in February.
Elsewhere, UK GDP and industrial production will offer a snapshot on the country’s economic activity during the third lockdown. The latest data come as the easing of some restrictions starts this week and are also likely to reflect the effects of Britain’s exit from the EU and its new trading relationship with the bloc.
Japan has revised GDP figures for the last quarter that could show slightly slower growth after the release of weaker capital spending data last week.
Central banks from two of the G7 economies — the ECB and the Bank of Canada — meet this week.
The ECB’s monetary policy meeting will allow president Christine Lagarde and other senior policymakers the opportunity to discuss the recent rise in government bond yields.
Lagarde is likely to face questions after the meeting about exactly how high the central bank’s pain threshold is on rising yields.
By then, the ECB will have already provided an indication of how worried it is about the bond market by publishing on Monday the weekly figures for its pandemic emergency purchase programme.
Analysts expect the ECB to step up the pace of its emergency bond purchases in the first week of March after they fell to €12bn in the final week of February, down from more than €17bn a week earlier.
The Bank of Canada is unlikely to show any signs of withdrawing stimulus at this meeting.
Market questions: Will the ECB intensify efforts to keep a lid on bond yields?
Main data and events
MONDAY
Germany, industrial production (Jan)
Japan, GDP (Q4, second release)
TUESDAY
Eurozone, GDP (Q4, final)
South Africa, GDP (Q4)
WEDNESDAY
China, CPI (Feb)
US, CPI (Feb)
Canada, rate decision
THURSDAY
ECB; Peru, rate decisions
UK, RICS house price balance (Feb)
US, initial jobless claims
FRIDAY
UK, GDP and trade, industrial production (Jan)
India, CPI (Jan)
Canada, employment (Feb)