Week in a Glance: Central Banks, Biden Tax Plans and Turkey

22 mars 2021

Last week wasn't easy for the financial markets. There were enough reasons for this: the meeting of the Central Banks of the United States, England and Japan. Also, the United States began to master Biden's stimulus package, but they were reminded of the price in the form of future tax initiatives. In addition, the third wave of the pandemic in Europe and the rise in US Treasury yields did not allow stock market buyers to relax and enjoy new all-time highs.

We'll briefly go through the most important points of the events mentioned. At the beginning of the week, plenty of news outlets distributed information that President Joe Biden was planning the first major federal tax hike since 1993. Stock markets growth will be hard, expecting a corporate tax hike to 28%.

Especially, having an alternative in the form of sharply increased yields of US Treasury bonds (reached a 14-month high) and the expectation of rising inflation. The markets were not calmed even more than the dovish results of the Fed meeting. The US Central Bank left the parameters of monetary policy unchanged and signaled that rates will remain close to zero until at least the beginning of 2023.

The Banks of England and Japan didn't change the monetary policy parameters, either. But the Bank of Turkey raised the rate by 2% unexpectedly at once. This was a pretty strong signal in favor of buying Turkish Lira (carry trade, and all). But over the weekend, Erdogan decided that life was too boring and fired the head of the Central Bank. He's long criticized the recent actions of the Central Bank and was very unhappy with the rate hikes. Well, now, it seems, the rate will start to lower. So, the holiday's over, especially considering what will happen to inflation in Turkey after the rate cut in the current conditions.

The coming week promises to be generally simpler. But, in particular, it'll be hot in pound pairs: a lot of macroeconomic statistics, starting with inflation data, ending with retail sales and statistics on the labor market. In addition, we're waiting for quite a lot of comments from the officials of the Fed, including the next Powell's testimony in Congress.