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Traders Digest Fed Message

Traders Digest Fed Message

US stock futures are trading lower following yesterday’s FOMC meeting, in which the policy rate was left unchanged, as expected, and the Fed reiterated that inflation is likely to be temporary. Investors should keep in mind that, according to Fed officials, the US economy still has some ground to cover before the central bank considers the inevitable tapering of bond purchases.

FOMC Meeting

The Federal Reserve’s chairman, Jerome Powell, reiterated his belief that the recent surge in inflation was caused by a strong economic recovery following the reopening from the bleak coronavirus situation last year. Investors should understand that the Fed’s massive stimulus of $120 billion in monthly bond purchases and strong earnings reported by corporations has fueled the strength of the economic recovery. This has boosted investor optimism and confidence in the equity markets.

Having said that, stock traders should be wary of the rising number of cases caused by the Delta variant. However, the US is on the right track to curb the spread of the disease within its borders, thanks to the administration of an effective vaccination drive. As it stands, nearly half of all US citizens are fully vaccinated. With such a scenario in place, potential lockdowns that have a negative impact on demand are very unlikely to occur again.

Investors should keep in mind that while the economy is quickly recovering, it still has a long way to go before reaching full employment. In this context, the central bank would be foolish to reduce bond purchases and raise interest rates, as this would stifle not only economic growth but also risk a stagflationary environment.

As a result, investors should expect equity markets to remain volatile in the short term due to daily earnings announcements, the release of economic reports, news related to the coronavirus situation, and updates on major economies around the world.

Chinese Tech Sell-Off

The announcement of strict controls on EdTech companies by Beijing led to a frenzy among investors related to tech stocks. The Hang Seng index fell by nearly 8% as a result of this.

However, in the past two days, the index has been on a path to recovery and has jumped by nearly 1.8% as of 10:42 pm EST. The Asian Pacific indices are on the rise today, with the Nikkei 225 index, in Japan surging by 0.34% and the Shanghai Composite Index rising by 0.66%. The ASX 200 index hopped 0.41%, and Seoul’s Kospi was trading flat in morning trade.

Authorities in China have backed the recovery, believing that the drastic sell-off was overblown. Officials have used media outlets to reassure investors by publishing articles in support of China’s position, and they have used government-linked funds to intervene and halt the massive drop in equity markets. Furthermore, regulators have approached investment banks to work on alleviating investor concerns about the future prospects of the private education sector and, more broadly, the tech sector.

Earnings

Facebook released its earnings yesterday and beat expectations. The company posted earnings per share of $3.61 and a revenue of $29.08 billion, outperforming projections of $3.03 and $27.89 billion, respectively.

On the other hand, the earnings of PayPal underperformed revenue expectations but met the earnings projections. The company posted revenue of $6.24 billion versus the expected $6.27 billion and earnings per share of $1.15 versus the forecasted $1.12.

Despite the strength in earnings, the stock prices of Facebook and PayPal fell by nearly 3% and 5%, respectively, after investors were warned of a potential decline in growth over the next few months. Investors should closely monitor the price charts of the mentioned companies today.

Cryptocurrencies

Crypto traders should vigilantly watch for updates relating to cryptocurrencies like Bitcoin, the benchmark for digital currencies, is finally on a rising trajectory, and if all goes well, the bulls may just be able to drag the digital asset above the $45,000 mark. The notorious asset has been on track for its longest winning streak ever this year.

On the fundamental side, the blockchain space is constantly evolving and providing a plethora of options for investors to choose how they want to invest in cryptocurrencies. The Bitcoin Strategy ProFund is the most recent financial product to provide investors with exposure to crypto markets. The fund invests in Bitcoin futures with the goal of tracking the value of digital coins. Several other investment firms have already filed to launch their own exchange-traded funds with exposure to Bitcoin and Bitcoin futures.

Gold

Initially, gold prices declined yesterday after the release of the Fed’s statement, which stated that the US economy is on the right path despite the hiccups caused by the spread of covid infections, and officials also discussed how to go about withdrawing the massive monetary support.

However, later, the billion rose after the Fed chair Jerome Powell stated in a news conference that the spread of the Delta variant may take a toll on the labour market and that the situation still does not support the hawks taking control. Subsequent to the news, the dollar index declined as well.

Oil

Yesterday, oil prices rose to $75 per barrel after the latest data showed a sharp decline in crude stockpiles that exceeded expectations. This update refocused the market’s attention on the gap between demand for and supply of black gold. Inventories fell by nearly 4.1 million barrels in the week ending July 23. Hence, strong demand and tight supplies have pushed oil prices upwards.