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Biden’s State of the Union

Friday Feeling, yesterday's State of the Union address from President Joe Biden, market expectations met by policy makers in Frankfurt yesterday afternoon, and US labour market data released today.

Friday Feeling

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Biden’s State of the Union

Yesterday evening, President Joe Biden delivered his State of the Union address to congress people on Capitol Hill. In what will be the last such address before November’s election, Biden covered an array of topics including the conflicts in Ukraine and Gaza, immigration, and the tax burden.

Starting with conflict in Gaza, Biden announced that the US will establish a temporary port on Gaza’s coast to allow for aid to be delivered. It is expected that the port will take a number of weeks to be constructed and will be able to alleviate some of the pressures on the one and a half million people sheltering in Rafa. The President also indicated that his Administration is working towards a six-week ceasefire in Gaza.

Regarding taxation, Biden proposed a new tax credit for first time property buyers to help ease the pressure from higher mortgages rates. Here, the measures would equate to an average of $400 per month over the next two years. Recent data shows the 30-year fixed rate mortgage in the US averaged 6.94% up from 5.89% in 2022.

Biden also vowed to increase taxes on the wealthy in addition to larger companies. He also cited cutting tax deductions for corporate jets and executive’s pay. For example, Biden indicated that income deductions would be limited to earning’s on $1 million for executive pay.

Continuing on this theme, Biden renewed calls for a so called “billionaire tax” which would see a 25% minimum tax on income for individuals with wealth over $100m.

Many of these measures will form part of Biden’s 2025 fiscal budget which is to be unveiled next week.

Of course, Bidens address comes as the incumbent gears up to take on former President Donald Trump for the November election. When looking at polling aggregations from RealClearPolitics (to 1 March), Donald Trump’s 47.5% leads Joe Biden’s 45.5%, giving the Republican frontrunner a two-percentage point lead.

ECB Policy Meeting

Yesterday afternoon, policy makers in Frankfurt met market expectations in holding their interest rates for the fourth consecutive time.

This keeps their main refinancing operations rate at unchanged 4.5%, while their marginal lending facility and deposit facility remains at 4.75% and 4%, respectively.

According to the ECB, inflation is now expected to average 2.3% this year 2024, ahead of subsiding to 2.0% in 2025 and 1.9% in 2026. While the newly published expectations represented a downward revision from previous forecasts, Lagarde stated that “domestic price pressures remain high, in part owing to strong growth in wages.”

The ECB’s downward revision of inflation expectations comes alongside growth forecasts being cut. For example, the central bank now see growth of just 0.6% this year though they cite an uptick in consumption and investment as the leading causes behind growth being forecast to rise 1.5% and 1.6% in 2025 and 2026, respectively.

Regarding the ECB’s Quantitative Tightening programme, the Governing Council said that they will reduce the portfolio by €7.5 billion per month on average over H2 2024. By the end of the year, they will also passively reduce their balance sheet by not re-investing into maturing securities.


Markets Await US Labour Market Data

13:30 will see the release of Non farms where the general market consensus is expecting a print of 200,000 jobs, down from last month’ figures of 353,000 (which represented the greatest increase in a year). The US labour market continues to remain robust despite tighter monetary conditions and it is expected that the US’ Unemployment rate will remain unchanged at 3.7% as the rate of increase on average hourly earning’s eases 10bps from 4.5% to 4.4%. Attention now turns to the release of the print and its implications on how markets see it in relation to the Fed’s forecasted future monetary pathway. 


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