Awaiting cues from Earnings and FOMC Awaiting cues from Earnings and FOMC Awaiting cues from Earnings and FOMC

Awaiting cues from Earnings and FOMC

Equities 5 minutes to read

Summary:  An FOMC preview and other comments


A humdrum session in Asia as markets brace for a busy week ahead, awaiting cues from the FOMC and a spate of big tech earnings. Solid earnings from these companies could breathe fresh momentum into markets and provide a catalyst for tech stocks to move higher alongside reopening/reflation trades. Copper a standout continuing to climb higher as structural deficits and concerns re top exporter Chile collide with a vaccine led recovery and increased demand for copper in green spending, smart electricity grid building, EVs/charging stations and wind turbines. Momentum is strong, it’s only a matter of time before copper hits US$10,000/ton.

Commodity markets continue to send inflationary signals and despite the clear inflation across the commodity complex and a strengthening US recovery that is longer just a forecast, but a clear reality the Fed will likely play down inflation and continue to point to transitory inflationary pressures. A trend that is clearly not transpiring in the real world as momentum continues to build across a suite of inflationary reads – for more see our inflation watch update.

Powell has clearly conveyed that policy makers are in no rush to withdraw their accommodative stance and under the guise of average inflation targeting this new policy regime will see the Fed on the sidelines for quite some time. This is a new framework, with a social justice overlay – U6 is the new U3.

With no change expected to their stance or bond purchase programme expected this week Powell is likely to reiterate the FOMC’s commitment to keeping policy unchanged at present. Given the improvement in the US economy, labour market and vaccination schedule juxtaposed with an ultra-loose Fed shying away from premature policy withdrawal, the meeting may be a non-event in the sense of offering up any new information. Whilst the statement may recognize the improved US economy, there is unlikely to be much in the way of fresh signal value with respect to tapering and eventually tightening. Recently Bullard, president of the St. Louis Fed said that reaching the hurdle where 75% of Americans have been vaccinated would be a signal that the pandemic was ending, and a potential cue for the Fed to consider tapering its bond-buying program. This signalling will evolve alongside the trajectory of the recovery but given the Feds outspoken guidance on meeting a 'substantial further progress' threshold, taper talk is unlikely to transpire until later this year. Although for markets, fresh drivers for expectations on the timing of tapering/the Fed’s next tightening cycle are likely to be found in coming months as economic data collides with extremely favourable base effects and rebounding demand.

With the Fed remaining tight lipped on tapering the read through for FX is likely limited. Although with the move higher in long dated yields in the US having consolidated of late, the apathetic stance on strengthening inflation alongside acknowledging the continued acceleration in the US recovery could send yields higher. The market sees inflation pressures and raises Powell one. It may be the more dovish Powell sounds on allowing inflation to overshoot and maintaining a patient stance with respect to policy settings the higher long end rates go as inflation expectations follow.

For equities, financial conditions are supportive, and the latest global economic data continues to show the economic cycle is accelerating with reflation in play. Granted favourable base effects are playing their part in the year over year acceleration in the data (and will continue to do so). To date S&P 500 earnings releases (132/500) are beating consensus estimates at a record setting rate, though with the high-profile tech juggernauts yet to report. All told the economic cycle continues to accelerate which remains the driving force propelling equity markets and underpinning a continued earnings recovery in the near term.

However, focus is slowly beginning shift to the impact of rising input costs, margin pressures and the prospect taxes hikes – likely a more difficult period to navigate is approaching in 2H.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.