Traders had a busy week full of major economic data, decisions of central banks, and earning results. After more than a year, market participants seem to regain hope about economic recovery, despite the crucial pandemic situation in many countries.
Fed still on hold but acknowledges the Recovery
Despite no policy change from the Federal Reserve meeting this week, an upbeat economic outlook raised hopes about QE tapering. Some market participants now expect the Fed to taper asset purchases later this year and rates may rise sooner than the fed expected in 2024. The Federal Reserve has kept the Fed funds rate range unchanged between 0-0.25%, while maintaining monthly QE asset purchases kept at $120bn.
Fed Chair Jerome Powell has stated during the press conference following the meeting, that tapering hasn’t been discussed. Yet, the considerable change in Fed’s assessment of the pandemic effect on the economy is worth noting. The statement changed that pandemic “poses considerable risks”. Powell suggested that vaccination program updates and expected additional fiscal support are the main factors behind their upgraded assessment.
The federal committee also acknowledged the firm economic activity and improving labor market. It signaled that the sectors most impacted by the pandemic have also shown improvement as well. Regarding inflation, the committee noted that inflation has risen largely reflecting transitory factors.
US Economic Recovery gains momentum
Recent data showed that US Gross Domestic Product grew 6.4% annually during the first quarter of the year. While growth came a little down from the expected rate at 6.8%, but it showed a fast acceleration from the previous rate at 4.3% in the last quarter of 2020, which was revised up from 4.0%. Consumer spending was up 10.7%, and non-residential fixed investment showed an increase of 9.9%, and residential investment posted a 10.8% rise with government spending rose 6.3%.
On a quarterly basis, GDP was up by 0.4% between January and March.
Expectations are getting high for growth in the 2nd quarter supported by the latest stimulus measures which pose a strong base for the growth. US GDP is expected to record double-digit growth by June. The economy gains its support from the stimulus program of 5 trillion dollars enacted by Trump and Biden, and now is looking forward to additional spending plans estimated at 4 trillion dollars.
Australian Inflation Weighs on Outlook
The Australian Consumer Price Index rose 0.6% in Q1, retracting from 0.9% three months earlier. On an annual basis, CPI was up 1.1%. Core CPI, which excludes volatile energy and food prices, recorded an annual rise at 1.1% and worse than expected quarterly rise at 0.3%. Official data showed that automotive fuel was the biggest contributor in inflation figures by +8.7% rise.
The recent figures reflect slower upward pressure on prices in the Australian economy and may require a response from the RBA if sustained. CPI print is expected to be a headwind for the Australian Dollar for some time.
The next high-impact event on the Australian calendar is next week’s Reserve Bank of Australia meeting. Economists expect the RBA to hold the benchmark rate at 0.10% with some speculation about the extension of the quantitative easing program.
Stocks up on Upbeat Earnings and Stimulus Plans
Amazon has reported better-than-expected results during the first quarter on Thursday, with quarterly revenue surging past $100 billion once more. The company’s revenue jumped 44% to $108.5 billion in the quarter versus $75.5 billion in the same quarter a year ago. Net sales of the e-commerce website surged 44% to $52.9 billion. Amazon is expecting revenues to grow around 24% to 30% ranging between $110-116 billion in revenues for the second quarter.
Facebook also reported revenue of $26.17 billion for the first quarter, with an annual rise of 48%. While net income jumped 94% to $9.5 billion, from $4.9 billion a year ago. The company attributed the significant rise to a yearly increase in the average price per ad.
On the other hand, positive economic data has boosted market sentiment. The upbeat US growth figures and falling weekly jobless claims to the lowest level since the pandemic began last year supported recovery hopes. Receding pandemic domestically and the reopening of the economy are supporting the stock market as well as the stimulus efforts by the federal government and Fed.
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