Last night’s FOMC meeting minutes went through as expected with little change in policy or wording of the statement. The press conference afterward may have seemed almost pointless to the casual viewer, as Chair Powell kept referring back to the statement in answering the press’ questions. To the point where we may have heard a little irritation from Chair Powell at the multiple ways, the market interrogators tried to word the same question. Basically, all anyone wants to know is when will monetary policy change. And going by FOMC tests of, 1. significant continual improvement in the economic data and 2. full employment with sustained inflation above 2%, we may find this current policy never ends. On that Chair Powell reiterated that now is still not the time to be talking about tapering asset purchases.
The Fed has seen what near full employment looks like, you only have to go back to December 2019 to see record numbers of employed people in America, but inflation was nowhere to be seen. Now we have service industries that may never get back to pre-pandemic levels as new ways of doing business means those jobs just may not exist anymore.
Companies are generally finding they are as productive or more so with fewer workers. There was a sense of confusion in Powell’s response to why the employment data was so weak, yet businesses were reporting that they are struggling to find workers. Clearly, something has changed, and it is not just that people are staying at home due to covid-19 fears. Though it may have to do with people being paid to stay at home, which may put a cap on any further talk on Universal Basic Income in the final analysis.
With regards to inflation, the buzz words were transitory and bottlenecks. This essentially refers to the base effects of starting from a very deep hole, and any progress out of that hole looking good. The fact remaining, we are still in a hole whilst covid-19 causes disruptions. And bottlenecks, again referring to the supply chain disruptions, which are starting from zero activity in global supply this time last year, and are still working their way back to full-service resumption with the ongoing pandemic restrictions.
There is nothing the Fed can do about these and they are relying on the scientists to combat the disease, at which point, people will have hopefully returned to work and the ensuing economic activity will provide some inflationary effect.
The markets have reacted with risk assets like stocks moving higher, and with yields going nowhere. Nasdaq is just under all-time highs, hovering around the 14000 big figure.
S&P500 is at all-time highs and trades above 4200, with no sign of reversing.
The US benchmark 10-year yield had been moving higher this week as the market saw the $1.8tln in planned spending from President Biden as adding to inflationary pressures. The 10-year yield is still trading within the 1.55% - 1.75% range.
Yesterday the US dollar slid lower towards the important $90 level and closed near the day’s lows, however at today's London open, a little pullback into yesterday’s range is showing some signs of the bears not getting it all their own way. There is a rising trend line which if we did get a lower print today would meet the price around $90.20 but the price action is in a very controlled downtrend and the moving averages suggest that the momentum is also to the downside.
The US dollar index heavily weighted to the Euro and the EURUSD this morning has found resistance at the 1.2150 price level which coincides with a supply zone created in February 2021. This could be technical, or it could be due to the German jobless rate, which was unchanged this morning at 4.5% for March.
Whether or not this can be the start of a bearish reversal for the euro which would support the US dollar is yet to be seen. GBPUSD, AUDUSD, NZDUSD, USDCAD all have the US dollar weakening in early London session trading. The weaker dollar and perceived improving economic outlook are still supporting higher prices in Oil.
The calendar today will be focusing on US Q1 GDP expectations and US core PCE. The US economy should have grown by 6.1% on an annualised basis but could be a lot higher given the amount of stimulus that has been pumped in over the last three months. And the PCE data is the Fed’s preferred inflation reading, so a positive change in that over the next few months is where they will judge how transitory this inflation really is.
The rising oil prices are pushing the Canadian dollar higher, which means the USDCAD is falling quite hard now. Looking at the ActivTrader sentiment indicator for the pair the extreme reading of 93% bullishness is showing that these traders are seriously getting squeezed. When that sentiment evens off, we should start anticipating a reversal in prices.
Later today we have earnings from Amazon after the close, which if it is a good print will add to the Nasdaq bullish sentiment for sure.