After a mixed closed on Wall Street, Asian stocks have pushed higher and Europe is pointing to a mildly stronger start on reopening optimism as investors look ahead to the Federal Reserve monetary policy announcement later today.
The Fed is not expected to take any action on rates or policy in this meeting. Jerome Powell has taken more actions and at a faster pace than any Fed Chair before him. With interest rates near to zero and unlimited QE, in addition to numerous programmes to help different parts of the economy, this will not be a meeting of actions.
Instead investors will be focusing on the Fed’s outlook. Given that the Fed didn’t provide any quarterly GDP and inflation forecasts in the March meeting, given the uncertainty of what lay ahead with coronavirus, the markets are ready to devour the stats that the Fed does now have. This will be the Fed’s chance to describe what the future path could look like. Although amid the huge levels of uncertainty that remain, we expect the Fed to go light on detail.
Following on from the stellar jobs report on Friday, encouraging car sales and mortgage data the Fed could look to strike a balance between applauding recent data, whilst keeping a very accommodative stance.
Any signs that the Fed is looking to take its foot off the gas could hammer risk sentiment, lifting the US Dollar whilst bringing US stocks sharply lower.
The Fed meeting comes as US stocks markets have risen to unimaginable levels given the scale of the coronavirus crisis impact on the economy. The Nasdaq passed through 10,000 for the first time on Tuesday. Strong gains in tech related shares made the Nasdaq a global outperformer. The S&P had also erased all gains for the year on Monday, although a slight sell off yesterday pulled the index back into red on the year.
In comparison the FTSE is a clear underperformer compared to its US counterparts or even the Dax here in Europe. The FTSE is still down -15% on the year, the Dax is just -2%. This is partly to do with the make up of the FTSE - the fact that it has fewer tech stocks, which have surged in lockdown and is more heavily weighed towards mining stocks and oil stocks. Commodities fell hard, particularly oil and their recovery is proving to be much more drawn out, not helped by the disappointingly slow road to recovery for China, the world’s largest metal consumer.
Data overnight showed Chinese inflation at factory level fell -3.7%, worse than the -3.3% forecast and down from 3.1% in April. Consumer inflation was also weak, falling -2.4% yoy. The disappointing data shows that demand remains weak and domestic recovery wasn’t gaining traction a quickly as hoped.
FTSE is set to lag its peers on the open.