Learn To Trade
 
Indicators & Chart Patterns

Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

Find your detailed guides here
Trading Glossary

From beginners to experts, all traders need to know a wide range of technical terms. Let us be your guide.

Learn More
Knowledge Base

No matter your experience level, download our free trading guides and develop your skills.

Learn More
Learn To Trade

Trade smarter: boost your skills with our training resources.

Create a live account
Market Analysis
 
Market News

All the latest market news, with regular insights and analysis from our in-house experts

Learn More
Economic Calendar

Make sure you are ahead of every market move with our constantly updated economic calendar.

Learn More
Technical Analysis

Harness past market data to forecast price direction and anticipate market moves.

Learn More
Live Webinars

Boost your knowledge with our live, interactive webinars delivered by industry experts.

Register now
Market Analysis

Harness the market intelligence you need to build your trading strategies.

Create a live account
Partnership
 
Affiliate Programme

Grow your business and get rewarded. Find out more about our Affiliate Programme today.

Learn More
Money Manager

Increase your income and get compensated for your trading knowledge with ThinkInvest, putting you in control.

Learn More
API Trading

Create your own trading platform or data tools with our cutting-edge APIs.

Learn More
Introducing Broker

ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.

Learn More
White Label

We supply everything you need to create your own brand in the Forex industry.

Learn More
Regional Representatives

Partner with ThinkMarkets today to access full consulting services, promotional materials and your own budgets.

Learn More
Partnership

Plug into the next-gen platforms and the trades your clients want.

Create a live account
About ThinkMarkets
 
About Us

Find out more about ThinkMarkets, an established, multi-award winning global broker you can trust.

Learn More
Security of Funds

Security of your funds is our number one priority. Find out more about our insurance policy with Lloyd's of London.

Learn More
Trading Infrastructure

When it comes to the speed we execute your trades, no expense is spared. Find out more.

Learn More
ThinkMarkets News

Keep up to date with our latest company news and announcements.

Learn More
Contact Us

Our multilingual support team is here for you 24/7.

Learn More
About ThinkMarkets

Global presence, local expertise - find out what sets us apart.

Create a live account
Create account

Fed and earnings dominate agenda

Fawad Razaqzada Fawad Razaqzada 28/04/2021
Fed and earnings dominate agenda Fed and earnings dominate agenda
Fed and earnings dominate agenda Fawad Razaqzada
  • Will FOMC signal QE taper? We doubt it even as economy in better shape and inflationary pressures on the rise
  • Fed might have to tighten its belt faster eventually
  • Growth stocks may struggle going forward and dollar set for comeback vs. JPY and CHF
  • Facebook and Apple earnings coming up
  • FTSE edges higher as Lloyds beats
The European stock markets edged higher on stronger company earnings results, while the dollar also found some support with speculators reducing their bearish bets on the greenback ahead of the FOMC’s policy decision in case there is a hawkish surprise in the policy statement or during Powell’s press conference. The focus also remains on tech earnings with Apple and Facebook to come later.
 
Will FOMC signal QE taper?
 
As much as I think the Fed should be starting to prepare the market for asset purchases reduction, I am doubtful it will do so at this particular meeting. The FOMC will likely re-iterate that the labour market slack remains too high, even if the economy is in a better shape than in March and more signs of inflationary pressures are evident. I think the Fed will wait until the June meeting when the FOMC will have the updated economic and inflation forecasts to work with.
 
Still, there is the potential for a hawkish surprise and that’s why bond yields have started to rise again, with investors also easing the selling pressure on the dollar in case the Fed does catch the market off guard. Fed Chair Jay Powell is likely to acknowledge that economic conditions have improved but will probably stop short of providing any clear hints as to when the Fed will actually taper QE. If he sounds more hawkish than expected, then the markets may see that as a sign that the Fed is getting worried about inflation and that it might decide to withdraw support quicker once it starts the tapering process.
 
Inflationary pressures on the rise
 
Indeed, inflationary pressures are building up. We’ve seen big rises in commodity prices such as copper, iron ore and lumber. Prices of soft commodities have also risen sharply with wheat, soybeans, coffee and cotton all pushing higher. Don’t forget that housing costs are on the rise too.
 
With margins tight, producers will likely pass on these raised input costs onto consumers. So it will be only a matter of time before the CPI overshoots the 2% target and there is a risk that inflation could be more sticky than the Fed expects.
 
Growth stocks could struggle and dollar set for comeback
 
In fact, by keeping the QE taps wide open, the Fed are only fuelling the fire, which will eventually require faster tightening to put out the flames.
 
Against this backdrop, you would have to think that the US equity markets, especially growth stocks whose yields are low, might struggle going forward (see below for more). The dollar is also likely to come back against some weaker currencies, especially against those where inflation is not too much of a concern – such as the Japanese yen and Swiss franc.
 
 
FTSE lifted by more upbeat earnings from UK companies
 
The FTSE maintained its bullish bias as more earnings beat expectations. After stronger-than-expected results from the likes of BP and HSBC yesterday, Lloyds Bank has also beaten expectations on profits, sending its shares over 3% higher and helping to underpin the UK index ahead of FOMC meeting. Lloyds revealed pre-tax profits of £1.9bn for the first quarter, which was much higher than city expectations. It comes after a boom in home lending as buyers have rushed to take advantage of stamp duty holiday ahead of its end of June deadline. The release of £459m in provisions that had been set aside for soured loans has also helped the lender posting solid results.
 
All about tech earnings on Wall Street
 
Meanwhile, on Wall Street, tech earnings continue to pour in. Microsoft and Google parent Alphabet both posted surging profits after the closing bell last night. The latter saw its share surge 4% in after-hours trading as sales were boosted sharply by an increase in digital ad spending by businesses and as it authorized the repurchase of up to $50 billion of its own stock. Microsoft saw firm demand for its cloud services while personal computer shipments were the strongest in more than two decades. However, its share slipped as some demanding investors were presumably not too impressed. AMD saw its shares rise as it met EPS expectations while sales surged. Apple and Facebook will report their results after the close tonight.
 
Tech sector faces key tests in coming months as earnings pour in  
 
 
The tech sector was among the biggest beneficiaries of the lockdown but as Microsoft, Tesla, Netflix and Intel remind us, past performance is not necessarily a good indicator for the future. The lack of further bullish follow-thru for some of these shares despite decent results may be sign of things to come for the sector.
 
It is possible that the bar may be set too high for these companies to beat. In addition, investors are looking ahead and would be wondering what will drive their shares as economies end lockdowns:
  • Working from home may soon become a thing of the past for many employees and other pandemic-driven consumer preferences are going to evolve. This might have major implications, especially for the technology sector. For example, companies with subscription-based services might struggle to win new customers the same way they did during lockdown when people stayed at home mostly and purchased services online. Taking Netflix as an example, its subscriber growth slowed far faster than anticipated in Q1 and was the smallest first quarter gain in four years. Its shares slumped, even though it reported better-than-expected top and bottom lines. So, it is going to become increasingly difficult for these types of companies that excelled last year to keep up pace. Investors will be focusing on what company execs will be highlighting about the changing behaviour of consumers in their quarterly reports and earnings calls, than just merely concentrating on the top and bottom lines.
  • Another big risk facing US companies is tougher regulations and higher taxes for the richest Americans. President Joe Biden and the Democratically-controlled Congress will be keen to regulate tech giants, with regulators continuing to pursue anti-trust actions against the likes of Apple and Alphabet. Meanwhile Biden’s proposal of nearly doubling levies on capital gains for people earning more than $1m could provide a massive blow to the equity markets, if it ultimately passes in a form similar to the initial proposal. It could discourage the richest Americans who are likely to own shares from allocating money towards long-term investments. They might sell shares before the tax increase becomes low, potentially derailing the stock market rally.
  • Meanwhile, as global lockdown measures are slowly likely to ease, things will hopefully return to more normal ways in the coming months. The US economy is likely to rebound strongly, and inflation will probably heat up as a result, requiring tighter monetary policy as a result. If the Fed were to start tapering bond purchases later in the year, this will likely put upward pressure on bond yields. Rising yields are seen as negative for the growth stocks, whose dividend yields are comparatively lower than what you would get from fixed income.
 
 
So, the technology sector may not perform as spectacularly as it did last year and there is a risk even, we could see a reversal in shares of tech giants as investors worry about rising borrowing costs, tougher regulations, higher taxes and lower earnings potential in the coming quarters.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

Learn more to earn more

our Education center

Related articles:

Ethereum hits new record but Dogecoin struggles

By Fawad Razaqzada

10/05/2021

Week Ahead: May 10, 2021

By Fawad Razaqzada

10/05/2021

NFP Preview

By Fawad Razaqzada

07/05/2021

Market update: Gold breaks out and Dow hits n...

By Fawad Razaqzada

06/05/2021

Could BoE trigger break of GBP/USD 1.4 handle?

By Fawad Razaqzada

06/05/2021

Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
×
Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
×
Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

Feel confident?

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Back to top