Fiscal week #7

Good evening folks and welcome back to our fiscal update. It’s been more than a month since we looked at figures, but I’ve been quite busy and I’m still working on automating some stuff sorry about that.

With that said, let’s see how fiscal is doing.

First, as always, we focus on fiscal impulse — so how much money the government is putting in the hands of the private sector. We look through the data as of last week since this week we don’t have the full picture yet. We had a positive week with $49.5bn in total spending, $4.9bn above the same period last year. Actually, for the first time in a while, we had the 4-week y/y average being positive at $7bn. Still, we are quite disappointed by the impulse vs. last year. If we compare, currently the deficit is $220bn smaller than a year ago. This is not supportive overall for the private sector and for markets.

When adjusting for GDP, we can see even better how the situation is not positive. We are at 1.95% of GDP, 85bp below the same level last year and 58bp below the 3-year average. Tough numbers.

There is some news on fiscal measures for ‘bottom’ consumers, as some tax relief will be provided. Maybe it can help to boost asset markets or at least consumption.

Still, looking forward, we continue to see positive catalysts and sustained fiscal spending going into the April tax window. Over the next 7 weeks we expect a total of $473bn being spent, although given the trend of the current year we are questioning the effect of such impulse.

Overall, also from a tax flows point of view, we continue to see the flows struggling and for now we don’t truly buy the idea of ‘strong’ economic growth. Still, we can have positive growth because commercial banks have simply been lending strongly over the last year, as shown below.

With that said, we think economic growth can still hold up and, going into the mid-terms, we think the US admin will use more fiscal stimulus to secure votes or at least generate some positive political bias on the economic front.

That’s all for today.

Best,

spaghettilisbon