US tech stocks uncertain ahead of FOMC decision

The US economy has been booming thanks to a massive policy support which has led inflation to reach 5% in May, while core inflation (which excludes food and energy) reached 3.8% - the highest level in almost 30 years. These are signals which the FED has tried to downplay in the past, insisting inflation is transitory, but whether it will be able to ignore them as they reach the highest levels in decades is another question. Nevertheless, interest rates are expected to remain unchanged despite other central banks around the world i.e. Iceland have already started tightening their policy, so focus today will primarily be on a couple of key issues. The first one is the topic of quantitative easing which has been one of the primary factors boosting stocks and indices to new record highs in an uncertain and unstable post-pandemic economic climate. The second is the FED’s IOER rate, which could be adjusted to reduce the massive USD over liquidity that can also be noted when taking a look at the record reverse repo operations. While it remains unclear if either of these measures are going to be discussed for certain, a lack of such discussion could be seen as a further dovish signal by the US central bank. On the other hand, a hint towards potential fiscal/monetary policy change could have noticeable impacts on both stocks and the USD with a particular risk for tech stocks, which have greatly benefited from the extremely accommodating policy along with the natural shift to technology required by aspects of the lockdowns.  

Oil prices continue to climb ahead of EIA inventory report

Oil prices remain at multi-year highs, with WTI closing higher 14 out of the last 17 sessions and gaining over 17% from a low of $61,55 reached just a few weeks ago. Both Brent and WTI are trading at the highest levels in years and have completely recovered from the pandemic drop as economies continue to reopen, leading to an increase in demand, which has been the main factor of concern. Yesterday’s American petroleum institute report showed a drop of 8.56 million barrels compared to the expected 2.9 million drop and as we await today’s government report, it remains to be seen if oil prices will manage to extend the upward move or if they will encounter resistance after rising over 50% this year (in the case of WTI). While inventories are declining, it is important to note that the Iran deal negotiations are ongoing and hope to be concluded by the 18th (Iranian election date). These could potentially bring back iranian oil supply into the markets while just recently Saudi Arabia also decided to revoke its voluntary production cut.