Fed head Jerome Powell & Co will be in focus through 2021 and beyond as rates and inflation dominate.
Investors are treading water ahead of a delicately poised Federal Reserve announcement.
The Fed is expected to raise its forecasts for economic growth, but at the same time retain its accommodative stance. Its previous assertion that the current inflation effect is transitory will need to be reiterated in order to avoid further uncertainty in the bond markets while for equities, any hint of a rise in interest rates earlier than expected would be unsettling.
While the current consensus is that rate rises are unlikely before 2023, the recent rise in inflation expectations will need to be addressed in view of more recent economic data suggesting that an economic recovery is already under way.
In the meantime, markets ran out of steam towards the end of the last trading session but remain healthily ahead for the year, with the Dow Jones having added 7.3%, the S&P 500 5.5% and the Nasdaq 4.5%.
US crude stockpile numbers are also expected later, with the oil price currently up by 33% in the year to date. Increasing assumptions around the return of demand for oil in the coming months, along with controlled supply have combined to boost the price. The issue of timing remains key, with sectors such as the airlines central to a spike in future demand in the event of overseas travel resuming in earnest.
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This could also impact big oil in the UK, where the likes of BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB) currently sit on gains of 22% and 16% in the year to date respectively. The rise in commodity prices generally has been predicated on a global return to economic form as the rollout of the vaccination programmes nudge populations ever closer to herd immunity and the move to some kind of normality emerges.
At the same time, the UK’s premier index is receiving increasing attention as an undervalued destination. The likelihood of a surge in economic growth could be of particular benefit to mature and cyclical businesses, which are to be found in abundance in the FTSE 100.
Coupled with undemanding valuations and an increase in overseas institutional interest, the FTSE 100 is potentially well positioned to build on the gains of 5.2% it has seen so far this year.
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