E-mini S&P 500 Futures (June): Settled at 4176.25, down 2.75
E-mini Nasdaq-100 Futures (June): Settled at 13,892.25, down 60.75
Doves flew yesterday as the Federal Reserve reiterated steadfast support for the economy and that it’s not yet thinking about tapering its unprecedented asset purchases. Although the committee’s view of the economy was upbeat, “indicators of economic activity and employment have strengthened,” Fed Chair Powell emphasized, “one great jobs report is not enough.”
Like we’ve said, this leads into April’s report next week for further validation. The committee, through its statement, and Powell during his press conference tied vaccine progress into their decision making, saying that people need to feel safe going back to work and resuming activities. They maintained the view that increases in inflation are merely transitory and there was certainly an emphasis on Covid-19 being the greatest economic risk. In the end, one of the biggest takeaways is that the Fed will “act on data, not their forecast” and has no problem being behind the curve.
The Fed meeting tied perfectly with President Biden’s speech to a joint session of Congress last night. With doves flying, Biden was able to emphasize how the U.S. has turned a corner in the pandemic and struck an enthusiastic tone with “America is on the move again.” The speech highlighted his new $1.8 billion spending plan, not to be confused with the $2 trillion infrastructure plan, that focuses on American families, childcare, and education.
The administration expects this agenda to be largely paid for by raising taxes on the wealthy. Both plans face staunch opposition by Republicans and a goal of last night’s speech was certainly to appeal to the GOP and their constituents.
The U.S. Dollar sold off sharply following the Fed, and Treasuries whipsawed higher, a traditional reaction to such dovish rhetoric. However, at the onset of U.S. hours and following stronger-than-expected economic data from Europe, the Treasury complex reversed course.
Overshadowing yesterday's move, there must be some doubt that President Biden’s spending plans can be absorbed by taxes as much as mapped out. Furthermore, the rally in commodities this week is inflationary and forces yields higher. Speaking of inflation, the Fed’s preferred gauge, the Core PCE index, is due tomorrow.
Today, the first look at Q1 GDP was better than expected at 6.4% versus 6.1% and weekly Jobless Claims were mixed, but continue to trend at pandemic lows. Federal Reserve speakers are back at it today, with Fed Governor Randal Quarles speaking at 10:00 a.m. CT and NY Fed President John Williams following at 1:00 p.m. CT. We’re eager to hear if they take a less dovish tone. There’s no reason to expect such, other than the “Jekyll and Hyde” game the Yellen committee played around the 2013 taper. Tonight, April PMI data is due from China at 8:00 p.m. CT.
To briefly touch on earnings, Apple reported another blowout quarter. It’d seem the indices were waiting around for these results late yesterday and the beat gave a green light after hours. Apple was up 2.5% ahead of the bell. Qualcomm also crushed estimates late yesterday and was up nearly 6%. Caterpillar reported a strong quarter this morning and the stock was up nearly 2%.
This morning, Mastercard, McDonalds, and Thermo Fisher all topped estimates, but the stocks are mixed. Merck and Bristol-Myers each missed and are trading lower. All eyes will be on Amazon, which is rounding out the Megacaps after the bell. (Disclosure: Blue Line Capital owns Apple)
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