Demand for risk assets increased yesterday even though there were strong economic reports from the United States. Apparently, traders are anticipating very good forecasts from the International Monetary Fund, as well as an extension of the Debt Service Suspension Initiative of the World Bank, which could help stimulate domestic growth and lead to a more active recovery of the global economy. But there is a catch: extending the program is actually profitable for rich countries, because if there is a protracted economic crisis, exports will remain unclaimed, thereby slowing economic growth.
According to World Bank President David Malpass, the upcoming G20 meeting will bring together the finance ministers of the world's largest economies. They will discuss whether to extend the Debt Service Suspension Initiative, as it will expire this coming June. The program took effect last May and helped save up to $ 5 billion in more than 40 countries. It was already extended last December, but Malpass said more work is needed to achieve sustainable and inclusive global economic growth.
On a different note, US President Joe Biden is seeking to gain massive public support for his new $ 2.25 trillion plan. To date, the bill faces serious resistance from Republicans and independent MPs, so the administration wants to use the public to push for its approval. Biden's aides believe that simply trying to convince Republicans is a strategy of a bygone era.
The main stumbling block of the program was the tax reform, which many Republicans see as a threat to US competitiveness.
But all in all, it is an eight-year plan that includes $ 620 billion in infrastructure and transportation investments, $ 580 billion in manufacturing and $ 180 billion in research and development. An additional $ 400 billion will go towards caring for the elderly and disabled.
Biden said it was designed to help those who give large contributions to the economy, not just the rich people. But he is completely open to alternative ideas from other legislators.
As of now, the plan constitutes:
- an increase in the corporate tax rate from 21% to 28%,
- cancellation of tax incentives for a number of companies with various forms of ownership,
- increase in the income tax rate for individuals earning more than USD 400,000,
- expansion of inheritance tax, and
- higher tax rate for individuals whose annual income is at least $ 1 million per year
And yesterday, three senior Democrats in the Senate came forward with another proposal. It calls for higher fees on profits earned from offshore companies, as well as higher penalties for companies that move profits out of the country to avoid paying taxes. But the plan does not yet talk about any specific rates, as it requires feedback from other legislators.
"The current international tax system is in need of significant reforms to ensure payments from large corporations while helping to stimulate investment in the US rather than in foreign countries," they said.
With regards to US statistics, the ISM said activity in the service sector accelerated quite significantly last March, as a result of which the index reached a much higher figure than expected. To be more specific, Service PMI rose to 63.7 points, well above the projected 58.5 points. The strong increase was caused by improved business activity and new orders, which jumped to 69.4 and 67.2 points, respectively.
But the same can not be said of the industrial sector, as according to the latest data, orders fell by 0.8% in February, slightly higher than the expected 0.5%. It was caused by the 1.2% drop in durable goods orders.
As for EUR/USD, the key level for today is 1.1820, as a break above it will lead to a larger jump towards 1.1855 and 1.1930 areas. But if the quote goes below the level, the euro will collapse to 1.1770 and 1.1740.
Today, employment reports from the EU will be released, followed by a Sentix investor confidence survey.
