Asian stocks and US equity futures are mixed as investors brace for the imminent cross-currents today, including Fed Chair Jerome Powell’s policy outlook, US President Joe Biden’s spending plans, and more Big Tech earnings releases. Amid the slew of headline-grabbing events slated for Wednesday, markets are also contending with rising Treasury yields, with 10-year yields breaking above the psychological 1.60 level to hit its highest levels in two weeks. However, the VIX has pushed deeper into the sub-20 region, which suggests an expected calm in equities over the coming 30 days despite the potential volatility triggers lined up for today.
The positive after-hours reaction to Alphabet’s blockbuster earnings report and its $50 billion share buyback announcement suggests some support for benchmark US indexes. However, that could be offset by the post-market declines in Microsoft’s stock prices despite its better-than-expected Q1 results.
Fed unlikely to rock the boat
The FOMC is widely expected to leave its policy settings unchanged at today’s meeting, with Chair Powell likely to stick to his script and pledge the Fed’s persistently accommodative stance. Yet markets are ready to pounce on even the slightest hint of policy normalization amid an economic recovery that is gaining more and more traction.
The onus is on the Fed to clearly convey its intentions for QE tapering and rate hikes, or risk whipsawing markets into a frenzy. While such commentary is likely still some way out, that isn’t stopping investors from already framing their expectations for such eventualities for US monetary policy, especially if the hard data continues to show the US taking bigger strides into the post-pandemic era. Thursday’s release of the US Q1 GDP and the weekly jobless claims print could buffer the optimistic outlook for the US economy, while also feeding into the market’s expectations for the Fed’s eventual policy adjustments.
Tax hike fears loom over Biden’s speech
When US President Joe Biden addresses Congress for the first time as POTUS today, investors won’t just be considering the implications of his “American Families Plan” on the US economy, but also on how such spending plans are to be funded. Since last week, investors have been mulling the prospects of a capital gains tax hike, alongside the already-proposed corporate tax increase, which could have a dampening effect on bullish sentiment surrounding US equities moving forward.
While the S&P 500 and the Dow are still likelier to post fresh record highs over the near-term, the tech-heavy Nasdaq could be particularly weighed down considering that Big Tech appears to be prime targets for when the tax man comes a calling.
Oil slips after OPEC+ decision to stay the course
Both Brent and WTI futures are paring some of Tuesday’s gains, after OPEC+ decided to press on with restoring more of their supplies over the next 3 months. The alliance appears confident that global supply-demand conditions can absorb the additional barrels, despite the persistently disconcerting developments surrounding the Covid-19 pandemic in major economies such as India and Brazil.
The incoming supplies indicates that $70 Brent is one step too far for the time being, barring surer signs that more countries can earnestly partake in the global economic recovery.
The continued rollout of the vaccine, coupled with the eventual loosening of Covid-19 curbing measures, are needed to justify to gradual rise in oil production. Markets must also continue believing that the global demand recovery remains on track in order to keep Brent prices above its 50-day moving average.