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U.S. Stocks: Wall Street extends losses as inflation fear lingers

Shares of Amazon.com Inc, Microsoft Corp and Alphabet Inc edged up between 0.4% and 1%, but were headed for their worst week in months.

• By: Reuters
• Updated: February 26, 2021 9:37 PM

U.S. Stocks: GameStop Corp jumped 11% as retail investors pushed up the stock in a renewed rally that could see it clock its second best week. (AP Photo/File)

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Wall Street’s main indexes extended losses on Friday as fears of a potential rise in inflation kept U.S. bond yields around one-year high, while tech stocks clawed back some losses.

Shares of Amazon.com Inc, Microsoft Corp and Alphabet Inc edged up between 0.4% and 1%, but were headed for their worst week in months.

The benchmark 10-year U.S. Treasury yield eased to 1.478% after jumping 1.614% overnight, roiling stock markets.

Wall Street’s fear gauge hovered at a one-month high.

“If rates continue to move that quickly, the markets wouldn’t like that,” said Eric Diton, President and Managing Director at The Wealth Alliance in New York.

“I don’t see reasons for panic out there. This is simply a normal overdue pullback.”

The major averages were knocked off their all-time highs last week after a sharp rise in U.S. Treasury yields triggered a selloff in some of the mega-cap technology stocks.

Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

The Dow is poised for its best month since November 2020 as investors bought into cyclical companies set to benefit from an economic reopening, while the Nasdaq remains on track to wipe out nearly all of its gains for the month.

Financials and energy shares, the best performing S&P sectors this month, slipped about 0.2% and 1%.

Technology stocks rose 0.6% and semiconductor stocks advanced about 1%.At 10:27 a.m. EST the Dow Jones Industrial Average fell 388.66 points, or 1.24% , to 31,013.35, the S&P 500 lost 25.56 points, or 0.67 %, to 3,803.78 and the Nasdaq Composite lost 41.33 points, or 0.32 %, to 13,078.10.

Latest data showed U.S. consumer spending increased by the most in seven months in January but price pressures remained muted.

Stimulus will be back in focus as the Democratic-controlled U.S. House of Representatives aims to pass President Joe Biden’s $1.9 trillion coronavirus aid bill on Friday in what would be the first major legislative victory of his presidency

 

WHAT IS FISCAL DEFICIT

FISCAL DEFICIT

A country’s fiscal balance is measured by its government’s revenue vis-a-vis its expenditure in a given financial year. Fiscal deficit, the condition when the expenditure of the government exceeds its revenue in a year, is the difference between the two. Fiscal deficit is calculated both in absolute terms and as a percentage of the country’s gross domestic product (GDP).

 

The fiscal deficit of a country is calculated as a percentage of its GDP or simply as the total money spent by the government in excess of its income. In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.

 

In her maiden Union Budget, Finance Minister Nirmala Sitharaman had revised the government’s fiscal deficit target for 2019-20 to 3.3 per cent of GDP, 10 basis points lower than the target for the previous financial year.

 

How is fiscal deficit calculated?

 

The fiscal deficit, in mathematical terms, is [total revenue generated — total expenditure]. The total revenue is the sum of revenue receipts, recovery of loans and other receipts of the government.

 

While most countries continue to project a deficit in their economies, a surplus is a rare phenomenon. A high deficit at times also emerges if the government is spending on developmental works like construction of highways, ports, roads, airports which will later generate revenue for the government.

 

What are components of the fiscal deficit calculation?

 

The fiscal deficit calculations are based on two components — income and expenditure.

 

Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables. The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, GST, among others. Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories, among others.

 

Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, emoluments, creation of assets, funds for infrastructure, development, health and numerous other sectors that form the expenditure component.

 

How is fiscal deficit balanced out?

 

While a rising deficit is a challenge for the government in the long term, to balance it out in short-term macroeconomics, the government looks at market borrowings by issuing bonds and selling them in through banks. Banks buy these bonds with currency deposits and then sell them to investors. Government bonds are considered an extremely safe investment instrument, so the interest rate paid on loans to the government represents risk-free investment.

 

The government also sees a deficit situation as an opportunity to expand policies and schemes, including welfare programmes, without having to raise taxes or cut spending in the Budget.

 

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Fiscal deficit hits Rs 12.34 trillion at end of January, shows data

By Press Trust of India | New Delhi | Last Updated at February 27 2021 02:26 IST

Topics Fiscal Deficit | Indian Economy | Gross domestic product

 
 
 
 
 
• 

The fiscal deficit, or gap between the expenditure and revenue, had breached the annual target in the month of July during this financial year

The central government’s fiscal deficit soared to Rs 12.34 trillion, or 66.8 per cent, of the Revised Budget Estimates at the end of January of the current fiscal year, according to the data released by the Controller General of Accounts (CGA).

The fiscal deficit at the end of January in the previous financial year was 128.5 per cent of the Revised Estimates (RE). In the current fiscal ending March 31, the fiscal deficit is likely to touch Rs 18.48 trillion, or 9.5 per cent, of the gross domestic product (GDP). The lockdown imposed to curb the spread of coronavirus infections had significantly impacted business activities and in turn, contributed to sluggish revenue realisation.

The fiscal deficit, or gap between the expenditure and revenue, had breached the annual target in the month of July during this financial year. The government received Rs 12.83 trillion — 80 per cent of the RE 2020-21 — up to January, 2021. This included Rs 11.01 trillion of tax revenue.

ALSO READ: India's core industries output sees marginal 0.1% rise in January

The tax revenue collection was 82 per cent of the RE of 2020-21, as compared to 66.3 per cent of the RE (2019-20) during the same period last fiscal. Non-tax revenue was 67 per cent of the RE. During the corresponding period of the last fiscal, it was 73 per cent.

According to the CGA data, total expenditure incurred stood at Rs 25.17 trillion, or 73 per cent of the RE in the current fiscal year. 

Last fiscal, it was 84.1 per cent of the RE during the same period.

For this financial year, the government had initially pegged the fiscal deficit at Rs 7.96 trillion, or 3.5 per cent of the GDP, in the Budget presented in February 2020.

However, according to Eevised Estimates in Budget 2021-22, the fiscal deficit in the year ending March is estimated to soar up to 9.5 per cent of the GDP, or Rs 1,848,655 crore. This will be because of rise in expenditure on account of the outbreak of Covid-19 and moderation in revenue.

Fiscal deficit had soared to a seven-year high of 4.6 per cent of the GDP in 2019-20, mainly because of poor revenue realisation.