- Speculation rises that Apple earnings, guidance signal rebound for big tech
- Thin trade in Asia, Europe because of May Day holidays
- Fed on tap as markets wait to hear if there will be another round of QE
Key Events
U.S. futures, including for the S&P 500, NASDAQ 100, and Dow, along with shares in the U.K. climbed this morning after Apple (NASDAQ:AAPL) yesterday beat earnings estimates and offered strong guidance on growth in its services segment as well as a 5% increase to its quarterly dividend. U.K. equities advanced after shares of grocery chain Sainsbury (LON:SBRY) surged on positive corporate results.
Earlier, shares in Australia advanced 0.8%, led by financials after Australia and New Zealand Banking Group (AX:ANZPH) published better-than-expected earnings, with little resistance amid thin trade. New Zealand equities, on the other hand, edged lower, as investors took profits after indices touched a record high last week. The New Zealand dollar fell after an unexpected employment decline.
Thin volume is also a factor in today's Asian and European trade as many regional markets are closed for local holidays. Yields pared losses, while the dollar edged lower for a fourth day, declining ahead of the Fed's latest monetary policy decision.
Global Financial Affairs
Yesterday's performance of major U.S. indices was mixed. FAANG stocks lost $100 billion in value after Alphabet (NASDAQ:GOOGL) earnings significantly disappointed on Monday, after the close. Shares fell 7.3% in after hours trading; the stock closed down 7.5% after yesterday's U.S. session.
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The question investors are now contending with is whether Apple’s upside surprise signals a rebound for all the U.S. tech giants, after Alphabet shares suffered their worst decline in over five years on slipping on revenue. Though Apple closed yesterday's session at $200.67, ahead of its report, the iPhone giant's pre-market price at time of writing is $212, up 5.65%.
Nonetheless, it's our contention that the Fed’s monetary policy has been the biggest influence on the market after QE, more so than any newsworthy trade theme. And indeed, that's been borne out repeatedly—the market has reacted very strongly to every Fed decision.
Today’s interest rate decision, as well as any pertinent details from the FOMC Statement and the language used at the subsequent press conference could have an even bigger impact, now that both the S&P 500 and NASDAQ have hit new record highs. As well, the Fed’s proven power over markets is likely to have increased—with the Fed’s back-and-forth rhetoric only magnifying scrutiny, creating a vicious cycle, in which both an unwilling Fed and an overeager market are intertwined in a dangerous back and forth that continuously escalates.
Therefore, we expect the Fed to reiterate their ongoing patient stance, which Powell first announced in January, as he attempts to say as little as possible, to avoid any additional awkward stumbling after December's rate hike.
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Yields, including for the 10-year Treasury note, trimmed gains within a range forming a rising flag. This is bearish after the 3.5% plunge within four sessions. It's now fallen below the short-term uptrend line, following its downtrend since November.
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The U.S. Dollar Index returned to the bottom of a short-term ascending channel. It's testing its medium-term ascending channel’s support.
WTI Crude retreated as U.S. inventories surged by 6.8 million barrels, offsetting global supply fears. Meanwhile, the price found support by the uptrend line since December. However, price volatility for the commodity could remain a factor: Riyadh is digging its heels in for a fight with the White House over control of the world oil market.
Up Ahead
- U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are in Beijing this week for a new round of talks.
- The Fed’s rate decision will be released today; the Bank of England sets interest rates on Thursday.
- Friday brings the U.S. jobs report: nonfarm payrolls are projected to rise by 187,000 in April. Economists expect an unemployment rate of 3.8 percent, with average hourly earnings growth picking up to 3.3 percent.
Market Moves
Stocks
- Futures on the S&P 500 Index climbed 0.3 percent.
- The U.K.’s FTSE 100 Index increased 0.3 percent to the highest in a week.
- The MSCI Emerging Markets Index gained 0.2 percent.
Currencies
- The Dollar Index dropped 0.05 percent, to a total four-day, 0.77 percent decline.
- The euro increased 0.1 percent to $1.1225, the strongest in more than a week.
- The British pound gained 0.1 percent to $1.3049, the strongest in more than two weeks.
- The Japanese yen fell 0.1 percent to 111.51 per dollar, the biggest fall in a week.
Bonds
- The yield on 10-year Treasuries increased less than one basis point to 2.51 percent.
- Britain’s 10-year yield advanced less than one basis point to 1.187 percent, the highest in more than a week.
Commodities
- West Texas Intermediate crude decreased 1.2 percent to $63.16 a barrel, the lowest in almost four weeks.
- Gold fell 0.3 percent to $1,279.25 an ounce.