A Plethora of US Happenings

Macro Monday:

On March 17, 2020, the Federal Reserve took a significant step to mitigate the economic impact of the COVID-19 pandemic. It made an emergency rate cut, slashing interest rates to near zero. This unprecedented move aimed to support the economy by making borrowing cheaper and encouraging spending and investment during a period of severe economic uncertainty.

A Plethora of US Happenings

It’s been another busy weekend in the White House. At varying ends of the spectrum, we’ve had; A stopgap bill agreed in the Senate to avert a government shutdown. A series of missile strikes aimed at Houthi rebels in Yemen and Donald Trump claiming that presidential pardons signed by president Biden aren’t valid because they were signed by an autopen!

Drilling into some of these: The spending bill was begrudgingly agreed by Democrats, with expenditure levels kept broadly the same, but chops funding to social programmes. Democrat leader, Chuck Schumer’s point of view is that a shutdown would be a worse outcome, particularly with Elon Musk taking an axe to a lot of government departments at the moment. Unfortunately, the bill passing does mean that social programs will be defunded to make way for tax breaks… which is probably not what the federal deficit needs right now.

The US strikes against the Houthis in Yemen were because “your time is up, and your attacks must top, starting today. If they don’t, hell will rain down upon you like nothing you have ever seen before” – those attacks killed at least 31 civilians and the response has been to fire 18 missiles and a drone at the USS Harry Truman Carrier group.

US Treasury secretary Bessant has made no guarantees that there won’t be a recession in the US, following Trump’s tariffs. The front page of the FT leads with “US shoppers tighten belts as tariffs and market volatility sap confidence. Footfall in US stores was down 4.3% in early March, compared to a year ago, whilst discretionary spending and fast food expenditure is down 3% and 2.8% respectively. US wealth is heavily linked to the stock market, with the majority of 401k (US retirement plans) having a heavy weighting towards domestic stocks. As such, Americans tend to follow the stock market more closely and feel wealthier when it rises and poorer when it falls.

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China economy stays its course

In the wake of Trumps growth threatening tariffs on all Chinese imports, China’s economy has held up remarkably well in the first two months of the year. Industrial production, retail sales and investment all meet or exceeded consensus expectations. This comes following a “Special Action Plan” released by Hong Kongs’s state council that is set to “vigorously boost consumption, expand domestic demand in all directions.”

On Monday morning, the National Bureau of Statistics said that Chinese retail sales increased 4% in the first two months from a year earlier. This was the strongest reading since October and increased from 3.7% in the print prior. Growth in fixed asset investment experienced its fastest gain since the first quarter in 2024, beating expectations by 0.6 percentage points. Industrial output rose 5.9%, also beating analyst expectations.

Since the ‘growth first’ pivot in September, ?these healthy consumption and production prints are most likely a welcome sign. In a bid to maintain such strength, the General Office of the Central Committee have issued its “Special Action Plan” to all regions and departments on Sunday. Its contents are said to stabilise the stock market and develop more bond products that are suitable for individual investors. This comes less than a week after Chinese Premier Li Quang developed a report that focused on boosting household spending to front run the inevitable lag effects of weak export demand.

Zooming out, China is facing a notably sluggish consumption environment. The most recent CPI figure experienced its largest drop since the contractionary territory in October 2022. Shen Danyang, director of the State Council Research Office, told reporters that China must focus more on domestic demand given the possibility of “new shocks” to overseas demand.

These reforms call for an increase in both rural and urban incomes and will be greatly received by those left susceptible to the next perverse Trump statement.

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