The S&P/ASX 200 Index (ASX: XJO) has opened boldly this morning, up a healthy 1.79% to 6,831 points at the time of writing. A large part of this jump is being attributed to some news out of the United States over the weekend. And no, it’s not the Prince Harry/Meghan Markle interview with Oprah.
According to a report in the Australian Financial Review (AFR) yesterday, the US Senate has approved a massive US$1.9 trillion stimulus package focused on coronavirus relief. That was along party lines. President Biden’s Democratic Party and the Republican Party each controlling 50 votes in the chamber.
The bill will now go to the House of Representatives for final approval before it makes its way to the desk of US President Joe Biden. The bill passed the Senate on a line-ball vote — 50 votes to 49. It is expected to easily pass when it is debated on Wednesday (our time). That’s because the Democrats have a larger majority of 11 in the House. If all goes to plan, President Biden will be signing the bill into law before the end fo the week. If this does happen as expected, it will be a major victory for the US President. As well as a fulfilment of a key election promise.
Why are markets excited about this Biden stimulus?
The share market is excited about this news simply because of the sheer size of the economic stimulus that is about to enter the world’s largest economy. According to the US Department of Commerce, the United States’ total gross domestic product (GDP) last year was US$20.93 trillion in 2020, meaning this package alone is worth 9.1% of the total US economy.
The package will consist of a new round of ‘stimulus cheques’, each worth US$1,400 for “low and middle-income Americans”. Those cheques come on top of the round of US$600 cheques that Congress approved back in December. It will also include new child tax benefits, higher unemployment payments, and money for hospitals and vaccine rollout acceleration. Payments to state and local governments are also part of the package. Democrats didn’t get all of what they wanted though. The proposed hike in the US minimum wage to US$15 an hour was not included in the final bill. That was despite protests from some of the more progressive Democrats like Sen. Bernie Sanders.
Democrats had promised a package of this scope in the run-up to the Georgia Senate elections last year (which came after the presidential election). Parts package were also part of Joe Biden’s election manifesto.
All of this extra cash looks set to make its way into the US economy within weeks. And that is why investors are excited about this deal. It is likely to mean more money comes through the tills of most US-based companies. And since the ASX tends to get excited (and depressed) about anything the US markets do, we are also feeling the love this morning.