Europe sees a muted start with earnings in focus

Despite a record close on the S&P500 overnight, European bourses are trading in a lacklustre fashion on Tuesday. Today’s open has been unremarkable at best, even though big names were reporting.

Despite impressive earnings from some heavyweights on the FTSE, the UK index is still struggling to push back towards the key 7000 level. Both BP and HSBC reported surging profits, with share prices rising 1.5% and 0.8%, respectively.

The FTSE isn’t alone in its muted start. The CAC and the Dax are also tiptoeing lower, with most sitting on the sidelines ahead of the Fed’s rate decision tomorrow. While no policy changes are expected, investors aren’t prepared to take aggressive positions ahead of the announcement and pursuant press conference.

News that Chancellor Angela Merkel’s government aims to open Covid vaccines to all adults by June failed to boost the Dax, which hovers around its all-time high. This points to the fact the vaccination programme is ramping up quickly in Europe after a sluggish start. The pace of the rollout is expected to accelerate in Q2 as vaccine deliveries rise.

Looking across to the US, futures are ticking a few points higher ahead of some big-name reporting. Tesla will be in focus after Q1 earnings beat estimates, but revenue fell just short. However, the biggest disappointment was the lack of guidance on full-year deliveries. This is the number that the market focuses on, and silence speaks volumes. The stock trades down 3% pre-market.

Microsoft and Alphabet are due to release their earnings after the close. Microsoft is expected to report strong Q1 earnings. Consensus estimates point to a 17% year-on-year revenue hike to USD41 billion, with EPS at USD1.78. The stock hit a fresh all-time high on Monday and sits just USD2 per share under a USD2 trillion valuation. As a stock that has benefitted greatly from the work-from-home ethos, guidance will be particularly in focus.

Dollar rises as FOMC kicks off

The US dollar is edging higher but remains near two-month lows as the Federal Reserve’s two-day policy meeting kicks off.

The Fed is expected to hold steady on policy. However, with the US economic recovery looking increasingly more convincing, Jerome Powell will almost certainly face intense questioning over the timing of the Fed’s next move.

US PMI data was impressive, and labour market recovery is broadly on track. However, the Fed has also been vocal about wanting to see the economy in a better place before easing support. June’s meeting is likely to be more significant. By then, there will be a good few months of strong data to digest.

European currencies are trading at the will of the US dollar, with little in the way of data to drive movement.

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