Pre-FOMC shuffle continues

Investors continue to reshuffle exposure ahead of today’s US FOMC meeting, with equities trading sideways, the US dollar rising modestly, and the long end of the US yield curve steepening. The scale of the shuffle, though, hints at caution and not panic. Assuming that the FOMC stays resolutely “on message,” I expect buy everything business as usual to return shortly thereafter.

US earnings continue to show impressive results, although I note that with so much good news built into equity prices, companies producing results on expectation are being punished in the short term. Tesla suffered that fate yesterday, and Microsoft’s shares have been marked down in after-hours trading following its Q1 earnings release. Conversely, Alphabet’s share price has risen this morning after releasing much higher than expected earnings after the Wall Street close. Despite the short-term noise, however, I suspect that assuming the FOMC contains no hints of a taper, buying the dip will quickly reassert itself

Apple and Facebook are the two heavyweights in the earnings ring this evening. Apple should surpass expectations boosted by their new iPhone demand. Facebook will also have sold an ocean of ads but may have cloudier future guidance after Apple’s no tracking IOS release, and ongoing litigation and regulatory threats.

Turning to the Asia-Pacific, South Korean Consumer Confidence rose to 102.20 for March, and Japan Retail Sales rose 1.20% MoM in March, both well above expectations. Covid-19 concerns in April may have mollified those numbers, but with domestic consumption lagging the export machine across Asia, both data prints hint that the recovery is becoming more balanced. Nevertheless, as we see in Thailand, the threat of Covid-19’s re-emergence remains the primary obstacle to Asia’s recovery and to the world’s.

In Australia today, official inflation disappointed, printing at 1.10% YoY for Q1 and 0.60% MoM for Q1, both well below expectations. Despite the inflationary noise from locales such as the US, inflation remains a challenge elsewhere, as evidenced by Japan’s data yesterday. I suspect inflation will accelerate in Australia as base effects squeezing global supply chains make themselves felt on Australia’s shores. However, Westpac’s economists have forecast that the RBA will extend its QE programme once again later this year. The Australian dollar has fallen by nearly 0.50% today to reflect this.

Looking ahead, Malaysian Exports should show a strong recovery later today, led by electronics. That should keep the recent Malaysian ringgit rally on track despite the caution ahead of tonight’s FOMC. Singapore Unemployment should continue to fall today as well, perhaps touching 3.0%. Still, a full recovery to pre-pandemic levels will likely have to wait until the city-state can reopen its borders to the world.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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