Apple delivers; FOMC may signal easing on soft inflation

Stocks posted mixed results, with the Dow Jones Industrial Average and S&P 500 squeezing out a gain, while the Nasdaq was down 0.5% following the move lower led by Alphabet.  The US dollar was weaker against most of its major trading partners, benefiting from a surprising upbeat economic day from the euro zone.  Markets are keenly focused on the latest update on the trade front and the Wednesday FOMC rate decision.  The base case remains for trade talks to remain constructive and the for the to remain patient and hint that cuts could come if inflation continues to soften.

FOMC – Doves are here to stay

Apple – Saves the Nasdaq

Stocks – Earnings continue to come in mix

Oil – Venezuela’s Guaido’s uprising drive crude higher  

Gold – Steady ahead of Fed and trade talks 

Fed

The FOMC concludes their two-day policy on Wednesday and while no change in Federal Funds Rates is expected, we could see a cut delivered on the interest on excess reserves rate (IOER), which would be more of a technical adjustment that could prompt an initial wave of dollar selling. Traders will closely watch the Fed’s reaction to the impressive first-quarter GDP numbers and dismal inflation releases. Expectations are almost at a coin flip that the Fed will cut interest rates at the September meeting.

The Fed will have to tweak their view that the economy has slowed since the last meeting and they will likely emphasize concern with low inflation. The Fed’s preferred inflation metric printed at 1.3% in the first quarter, well below the Fed’s 2% inflation target. Since the March meeting, downside risks appear to have evaporated as the economy grew 3.2%, although much of that gain is being attributed to private inventory investment, net exports and government spending. The Fed will have a tough few next meetings, but they should stay to the script and remain on hold until they can see how the second quarter unfolds. They may not have the patience to wait on addressing the soft inflation and they could tee up a rate cut to occur before end of summer.

Apple

Apple saves the Nasdaq!  The bar was pretty low following the January 2^nd profit warning that shook the tech world.  Apple posted its second consecutive decline in profit and revenue, but they beat the street’s expectations.  Services revenue continue to grow and the company approved a $75 billion share buyback and a dividend increase.  Markets appear happy with Apple and will give them time to grow other revenues from other services and subscription offerings.

Stocks

Earnings results continue to come in mixed.  Early in the morning, Merck shares rose higher on a strong beat with both the top and bottom line but shares mainly reacted to the approval of a new global restructuring program.  General Electric also delivered a slight beat, and the shares jumped higher because they went through less cash at the beginning of the year.  McDonalds posted roughly in-line results and their shares were little changed.

After the close, the strong results from Apple are helping wash away all the weakness we saw from Alphabet.  Other strong earnings numbers came from Mondelez International and Advance Micro Devices.  Healthcare player, Amgen delivered decent results, but the stock was unable to rally, a repeating theme we are seeing with many pharmaceutical companies.

Oil

Crude prices are off their best levels after the weekly API oil inventory report showed a build of 6.8 million barrels, up from the draw of 3.1 million barrels we saw last week.  Earlier in the day, oil was all about the escalating turmoil in Venezuela, which holds the world’s biggest cruder reserves.  West Texas Intermediate crude jumped over a percent when Venezuelan opposition leader Juan Guaido called for an uprising with military support.  This is the first time we are seeing Guaido gain momentum with the military and this could be a turning point in the ousting of President Maduro.  The end is likely to be nearing for Maduro and we may see heightened clashes which could drive oil higher.  But when Maduro is defeated and as long as Guaido is able to take control of the country, we could see oil eventually selloff.  Risks remain that Guaido could get captured and that could keep oil bid despite optimism the Venezuelan leadership conflict could be resolved.

Gold

The precious metal is steady ahead of key FOMC rate decision and press conference.  Continued dovishness from the Fed is what may be needed to give gold a boost, but the expected culmination of a trade deal could prevent any gains from getting out of hand.

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