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.

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.

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