The Federal Open Market Committee of the Federal Reserve is meeting this Wednesday to deliberate on its monetary policy amidst troubling outlooks for recovery.
Chiefly, the number of newly confirmed COVID-19 cases remains climbing every week, which increases the likelihood for the reintroduction of lockdown restriction measures.
The cushioning effect of FED's interventions so far during the crisis, could be jeopardised from such new closedowns of major industrial sectors if the epidemic remains on its current trajectory.
The FOMC has to deliberate these external factors yet again, which could muddle the precision of its final monetary actions. Meanwhile, minor improvements in underlying inflationary pressures give little economic reasons for the Committee to relax.
The accommodative monetary policy coupled with near-negative interest rates is therefore likely to remain unchanged in the foreseeable future, as the US economy struggles to make more robust advances towards maximum employment and inflation at the symmetric 2 per cent target level.
That is why the consensus forecasts expect no changes to be made to the policy on Wednesday, and the Federal Funds Rate is projected to remain at its current level of 0.25 per cent.
Nevertheless, the FOMC could opt to ramp up its purchases in the Open Markets, similarly to what it did in early June. Such actions would be justified as a necessary stabilisation measure for the smooth operation of the financial system as the epidemic threat looms ever larger.
Should the FOMC decide to scale up its asset purchasing programs, this could support the reeling dollar. The greenback has been plummeting ever since the euro started soaring following the pivotal fiscal deal of the EU finance ministers in Brussels.
Another round of pivotal earnings data releases of major blue-chip companies is scheduled for this week, which is bound to stir even more volatility following last week's trend.
Amazon, Apple, Alphabet and Facebook are the biggest and most interesting companies reporting this week. All are expected to release their quarterly performance numbers on Thursday except Facebook, which is scheduled to do so on Wednesday.
The tech sector remains the best performing part of the industry in the context of the coronavirus crisis; however, the companies that have reported so far have underwhelmed the markets.
A good example is Microsoft, which managed to beat the initial forecasts, but its share price fell after the release of its Q4 data nonetheless. This is illustrative of how the opinions of traders and investors are currently changing.
The stock market generated a remarkable rally over the last several months, but given the rising number of COVID-19 cases, it is starting to show signs of exhaustion. This could lead to a new bearish correction.
This is demonstrated on the 4H comparison chart below. As can be seen, the major stocks attempted to resume climbing further north following the completion of the Plateau, which came to no avail. The consecutively lower peaks indicate a transition in the market towards adopting a more bearish outlook.
After this week's releases, it would be seen as to whether these distortions would pan out to be nothing more than temporary ripples or the beginning of a new sizable downturn.
Amazon and Apple continue to trade above the Nasdaq composite, which is indicative of their resilience. However, even these best-performing stocks are currently sliding, which gives prominence to the expectations for a possible correction.
Tuesday – CB Consumer Confidence in the US; Macdonald's Corp reporting earnings before the market open; Starbucks Corp reporting after the market close; eBay Inc. reporting after the market close; Visa Inc. reporting after the market close;
Wednesday – CPI q/q in Australia; Crude Oil Inventories in the US; Boeing Co. reporting before the market open; Dominion Energy Inc. reporting before the market open; Qualcomm Inc. reporting after the market close;
Thursday – Preliminary GDP q/q in Germany; Advance GDP q/q in the US; Unemployment Claims in the US; Gilead Sciences Inc. reporting after the market close;
Friday – Manufacturing and Non-Manufacturing PMI in China; GDP m/m in Canada; Exxon Mobil Corp. reporting before the market open; Caterpillar Inc. not yet specified; Chevron Corp. reporting before the market open;