The Federal Reserve (Fed) will announce its latest monetary policy decision today and is broadly expected to maintain its near-zero interest rates and massive bond purchases strategy unchanged at this month’s meeting. Because there will be no policy change, the focus will be on ‘when would things eventually start moving’. There are rumours that the Fed could gently start talking about the tapering of its bond purchases, as the US jobs market recovers at an encouraging speed, the economic growth seems robust, and higher inflation is knocking loudly at the door.
But I believe that Jerome Powell will avoid having that taper talk at this month’s meeting, as Joe Biden’s plan to nerly double the capital gains tax should give another shake to the financial market, and stock investors can’t affort being slapped by Biden and by Powell at the same time. One should give in and that’s probably Powell, given how determined Biden moves on with his own policy decisions.
Also, Jerome Powell knows that bringing the taper talk on the table will be the first step in announcing a tighter monetary policy. Therefore, giving a hand would cost Powell a whole arm, because investors will immediately start pricing in the next rate hike. Given the mounting tensions from the capital gains tax front, it’s probably not the right moment to add fuel to fire.
As such, Powell will probably repeat that despite the encouraging recovery in the US jobs market, the number of jobless justifiy the continuation of the Fed’s ultra-supportive monetary policy.
We see some positive pressure on the US 10-year yield ahead of the FOMC decision, but a sufficiently dovish Fed and a sufficiently convincing accompanying statement could easily reverse the positive pressure on US yields, and result in a softer US dollar against some major peers and gold.
On the earnings front, beating analyst estimates hasn’t been enough to boost the share price of Microsoft yesterday, and it may not be enough to boost Facebook and Apple’s share prices after today’s earnings announcements.
There is clear consensus on the official consensus, and the real consensus for the tech stocks is a super-beat, and not just a slight beat, and even less an in-line number.
Finally, OPEC+ countries were supposed to meet on Zoom this week, but the world’s oil leaders decided to push their meeting to June, and keep their oil production cut levels intact for another month. The latest decision should help keeping the price of US crude above $60 per barrel, yet the upside potential remains limited.
Activity in FTSE futures hint at a bullish start on Tuesday, however, soft energy and commodity prices could limit the topside before the 7000p mark.
