The US and European futures are trading higher as traders digest the dovish message from the Federal Reserve yesterday. We have also seen a strong session over in Asia, which is also strengthening the optimism among investors and traders in Europe. Having said that, traders do need to keep in mind one particular comment made by the Fed where they mentioned that there is some froth in the stock market.
The Fed left the interest rate unchanged yesterday as per the market expectations, and it also pledged to continue to buy at least $120 billion of bonds each month. What took the market by surprise was the statement of the Fed Reserve’s Chairman, Jerome Powell, who still believes that the recovery is uneven and far from complete. Traders took this message as extra dovish and reacted accordingly. The result was more sell-off in the dollar index, and even today, we still see the index under the influence of this narrative. Currency pairs such as the EUR/USD have picked up more strength, and they are maintaining those gains today.
The FOMC event also spurred a rally in the gold prices. The Fed did acknowledge improvement in economic activity and strength in the employment market, which is mainly due to the positive progress on the vaccine front and support from fiscal policies. However, traders were hoping to hear some sort of hint about tapering, but the Fed made it clear that it is too early to have that kind of conversation. This has helped the gold price pick up more strength, although we see some of that momentum fading a little today.
The overall effect of the FOMC meeting may not last long because today, we do have important economic data for the US. At 1:30 PM, BST, we are going to get the US quarterly GDP number, and the expectations are to see some strong numbers for Q1. The forecast is that the number will show a reading of 6.1%. If the actual number exceeds this reading or even matches the expectations, it is highly likely that investors will forget what the Fed said yesterday, and they are going to take the current sell-off in the dollar index as an opportunity to bag some bargains. However, if the GDP number comes out short of expectations, then it will reinforce everything, especially one factor, and that is, the Fed is absolutely correct in not rushing to begin the taper talk.
On the earnings front, we saw some seriously strong numbers from Apple and Facebook last night. The earnings report confirmed that Apple’s sales number soared 54% during the first quarter, and every product category experienced nearly double-digit growth. The company also announced an increase in its dividend by 7%, and to make the deal even better, Apple also announced a $90 billion share buyback programme.
As for Facebook, the revenue numbers surged by 48% thanks to its higher ad pricing. Facebook reduced its capital expenditure for 2021 to between 19 billion to 21 billion. One of the areas which was somewhat lacklustre was the daily active users, which came in at 1.88 billion while the forecast was for 1.89 billion. Monthly active users also fell short of expectations. However, the average revenue per user was still strong and came in well ahead of the forecast. The future landscape looks less positive as the company did mention that it is bracing itself for new regulations related to its ad targeting and other platform challenges.
As for today, it is going to be another busy day on the earnings front as 11% of the S&P 500 companies will report their earnings. We are going to hear from companies like McDonalds, Comcast, Gilead Sciences, Twitter, and Amazon. In addition to this, we also have US Initial Jobless Claims data which is sitting near the pandemic low. Today also marks Joe Biden’s 100th day in the White House as a President of the United States. Yesterday in a joint session of Congress, he talked about his infrastructure stimulus plan of $2 trillion and his new $1.8 trillion stimulus plan for Americans.