Dovish Fed boosts sentiment overshadowing AstraZeneca restrictions

Optimism surrounding the global economic recovery, supported by an accommodative Fed, lifted European stocks in early trade.

The minutes from the FOMC March meeting didn’t reveal anything new, but a reiteration of the Fed’s supportive stance appears to have been a tonic for the markets. Wall Street’s main indices closed mildly higher, and European bourses opened on the front foot.

The minutes showed Fed officials remain committed to their dovish stance, despite signs that the US economic recovery is picking up. Policymakers at the Federal Reserve believe any rise in inflation will be temporary and consider it necessary to continue supporting the economy until recovery is on firmer ground.

The Fed is sticking unwaveringly to the dovish hymn sheet, and the market could be starting to believe it. The Fed is showing little appetite to begin tapering bond purchases or raise interest rates, which is music to the equity markets’ ears.

While confirmation of a supportive Fed has lifted stocks on the open, gains could be capped by another blow to the European vaccine rollout. AstraZeneca’s Covid vaccine has been linked to rare blood clots in young people, which has led to restrictions in its use in people under 30. This is of particular concern in Europe, which is especially dependent on the AstraZeneca vaccine within its already sluggish vaccine rollout programme.

The European vaccine rollout can’t afford to go any slower, especially in light of rising case numbers and economically damaging tighter lockdown restrictions. The IMF has already highlighted that the vaccine’s slow administration has caused a downward revision to the region’s growth prospects. While the market is looking past this now, any signs of vaccination rates decelerating could quickly hit sentiment.

Looking ahead, US futures are pointing to a mildly upbeat start, heading towards fresh record highs as the Fed sticks to stimulus. The tech-heavy Nasdaq is set to outperform its peers, boosted by a fall in US treasury yields and the prospect of ultra-low interest rates for longer. We continue to see further signs the rotation trade out of growth and into value has run out of steam for now.

All eyes will be on Federal Reserve Chair Jerome Powell, who will take to the stage later but is expected to reiterate the same message. US jobless claims will also be in focus.

FX – ECB minutes, Fed Powell and initial jobless claims under the spotlight

The US dollar is weakening on Thursday, hovering around two-week lows after the March FOMC meeting minutes pointed to a continuation of the Fed’s accommodative policy.

A softer tone surrounding the US dollar is providing an opportunity for other majors to advance. The euro, which has been on a tear this week, up almost 1% since Monday, is edging towards 1.19. Although gains are capped by concerns surrounding the AstraZeneca Covid vaccine news.

Attention will now turn towards the release of the minutes from the ECB March meeting. Few surprises are expected, with the minutes likely to reiterate the central bank’s pledge to keep long-term yields at low levels.

Looking ahead, a speech by Fed Chair Powell is not expected to bring anything new to the table.

The US labour market has been in focus over the past week following blowout non-farm payroll figures and better than expected JOLTS job openings. Initial jobless claims are expected to show 680k in the week ending 2 April, down from 719k. A strong report could boost optimism surrounding US economic recovery and lift the greenback out of the red.

Oil trends lower after bearish EIA report

Oil is snapping a two-day rising streak despite the broadly upbeat mood in the wider market and a weaker US dollar. A bearish weekly EIA crude oil inventory report did little to support the price, although it was far from unexpected given it largely confirmed the API data from Tuesday.

The EIA report revealed a larger-than-expected 3.5 million barrel draw in inventories. However, distillate and gasoline stocks saw a much greater rise than expected, with builds of 1.452 million and 4.044 million, respectively.

Fundamentally, fresh catalysts are few and far between. Oil markets continue to fret over rising Covid numbers in key developing markets such as Brazil and India, while parts of Europe appear to be locked down indefinitely. While Covid developments remain negative, there seems little hope of crude oil trading meaningfully back over USD60.00.

Gold’s gains capped

Gold is clinging to gains near a two-week high as it rebounds from yesterday’s pullback. The weaker US dollar, which is failing to capitalise on a move higher in treasury yields, is offering support to dollar-denominated gold. However, a combination of rising yields and a broadly upbeat mood in the financial markets is likely to keep any gains in the non-yielding safe-haven precious metal capped for now.