International Communique No. 286 – 7th April 2021


Better-than-expected economic indicators and the planned infrastructure programme have bolstered forecasts for a swift recovery in the US economy. On Wall Street, the Dow Jones and S&P 500 hit all-time highs on 5 April 2021 as major growth stocks regained ground.

Staying with the US, the number of jobs created in March, released on Friday after the closing bell, clocked in at 916,000, which was leagues ahead of the forecast 675,000. The unemployment rate fell to 6%, in line with estimates. In addition, the services sector is red hot, with the ISM number jumping to 63.7 in March – an all-time high. Earlier fears of rising long-term yields, reflecting a possible shift to a less expansive monetary policy by the Fed, were overshadowed by encouraging news on the vaccination front.

The yield on 10-year US Treasury bonds levelled off around 1.70. In a speech to the Chicago Council on Global Affairs, the Treasury Secretary stated that the stimulus package is unlikely to heat up inflation. It was also said that the US Treasury office is working with the G20 countries on a global minimum tax rate for corporations, which would spell an end to tax competition. In the US, the President wants to raise the corporate tax rate to 28% from the current 21%.

In China, the Caixin Services Index stood at 54.3 in March compared with 51.5 in February. Supply and demand continue both to rise amid a strong increase in orders. Confidence is also riding high. The People’s Bank of China has asked the country’s major banks to limit new lending until the end of the year, which has dampened investor enthusiasm.

After a firm start to the year, Chinese equities began a correction in mid-February. The medium-term economic outlook is strong, although GDP growth will surely be lower than during the previous decade. The MSCI China Index is currently trading on 15x estimated earnings for 2022, offering solid growth potential for a reasonable price.

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