April seems to bring a continuation of the bull market on stock markets despite the prolonged economic restrictions introduced in response to the bad pandemic situation. All this is due to the confirmation of investors that any deterioration in the economy will be supported by the actions of governments and central banks.
In yesterday's minutes of the Federal Reserve's most recent meeting, Fed officials commented on the significant rise in Treasury bond yields and generally felt that it reflected an improved economic outlook, some strengthening of inflation expectations, and expectations for increased issuance of Treasury debt. The outlook for inflation is seen as balanced, while supply disruptions and strong demand could cause it to rise beyond expectations. The Fed also indicated that asset purchases will continue at least at the current pace until substantial progress is made toward the goals of maximum employment and price stability, and stressed the importance of clearly communicating its assessment of progress toward those goals well in advance of changing the pace of asset purchases. At its March meeting, the Fed left the target range for the federal funds rate unchanged at 0-0.25 percent and signaled a strong likelihood of no interest rate hikes until 2023.
As a result, U.S. S&P 500 index futures soared to record highs on Thursday as strong U.S. data and the Federal Reserve's raising of its economic forecast seemed to fuel risk sentiment. Recent data pointed to a rapid economic recovery, with wage growth the strongest in 7 months, the ISM Services PMI hitting a record high and job openings hitting a two-year high. The sentiment was further bolstered by rising vaccine distribution in the US when President Joe Biden pushed back the deadline for individual states to make vaccine doses available to all adults by April 19.
The mood is not spoiled by announcements about the possibility of higher taxes. However, investors seem to be following developments at the IMF and World Bank spring meetings when U.S. Treasury Secretary Janet Yellen earlier this week called for a minimum global corporate tax rate, which coincided with President Biden's plans to raise the U.S. corporate tax rate from 21 percent to 28 percent to help fund a $2 trillion infrastructure plan.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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