Eyes on FOMC Presser, Megacap Earnings

MACRO FRAME

Equity markets continue to remain sensitive to changes in oil prices and news flow ahead of a busy week of earnings. The Fed, European Central Bank, Bank of Japan, and Bank of England will all hold policy meetings, all are expected to maintain their respective policy rate.

STOCK INDEX FUTURES

US equity indexes are mixed, with tech leading gains ahead of today’s FOMC decision, Senate Banking Committee confirmation vote of Kevin Warsh, and a slew of big tech earnings after the bell. Wednesday afternoon will be a critical moment for US equity indices, with four hyperscalers, Microsoft, Alphabet, Amazon, and Meta, due to report after the close. To date, this earnings season has been unusually strong: more than 80% of companies have topped estimates versus a typical 77%, and in aggregate earnings are running about 12% above expectations, well ahead of the historical norm of roughly 7%. Investor‑relations teams always manage expectations to generate ‘beats,’ but when the breadth and scale of surprises are this elevated, it tends to support the market. At the same time, the revisions story is highly concentrated: around 43% of the increase in 2026 consensus profit comes from semiconductors alone, and once IT hardware and energy are added, close to 98% of this year’s extraordinary profit upgrade is explained.

The indexes fell on Tuesday following a Wall Street Journal report that OpenAI had missed revenue targets, fueling worries over AI spending, a theme that is likely to be in focus today. The VIX is trading at 17.95, up 0.12 points (+0.7%) from Tuesday’s close of 17.83, reflecting a meaningful unwind of yesterday’s hedging spike as megacap tech earnings have so far avoided major disappointment ahead of today’s FOMC decision and tonight’s reports. The reading sits in the middle of the moderate 15–20 band, indicating tail-risk pricing has eased back toward complacency and arguing against an aggressive risk-off posture into the cash open.

The June S&P is trading at 7,174.50, up 0.05% from Tuesday’s settlement of 7,171.00, within an overnight range of 7,166.50 to 7,188.50. Near-term support is seen at 7,166.50 (overnight low), then the 7,150 round number, with initial resistance at 7,188.50 (overnight high), the 7,200 psychological level, and the 52-week high of 7,223.25. SPX cash remains well above its 50-day moving average of 6,796.93 and above the 200-day at 6,716.02.

The June Nasdaq is trading at 27,254.00, up 0.31% from Tuesday’s settlement of 27,168.75, within an overnight range of 27,191.75 to 27,317.25. Near-term support sits at 27,191.75 (overnight low), then the 27,000 round number, with initial resistance at 27,317.25 (overnight high), the 27,500 round level, and the 52-week high of 27,542.50. NDX cash remains comfortably above its 50-day moving average of 25,019.99 and above the 200-day at 24,755.24.

The June Dow is trading at 49,295, essentially unchanged from Tuesday’s settlement of 49,297, within an overnight range of 49,247 to 49,417. Near-term support is seen at 49,247 (overnight low), then the 49,000 round number, with initial resistance at 49,417 (overnight high), the 50,000 psychological level, and the 52-week high of 50,937. DJIA cash remains above its 50-day moving average of 47,871.63 and above the 200-day at 47,131.80.

Watch point: Megacap earnings this week sets up a momentum test for markets amid the Hormuz disruption and will likely bring fundamentals back into price action. However, the US-Iran conflict will continue to dominate overall sentiment.

CURRENCY FUTURES

US DOLLAR: The USD index is little changed at 98.68 ahead of today’s busy calendar. Ongoing geopolitical tensions and higher oil prices are likely to keep the dollar well-bid, though focus will center on today’s FOMC conference and equity earnings after the bell. A risk-on posture from markets is likely to see the dollar trade lower, though overall direction is likely to be determined by oil prices.

Underlying fundamentals make the case for a resumption of the dollar’s downward trend once hostilities between the US and Iran are officially over. Despite rising inflationary pressures driven by energy prices, the dollar has lost its interest rate differential support it once drew from hawkish Fed expectations, support that has since been repriced away. With the labor market softening materially, the underlying case for a Fed rate cut later in the year remains intact.

Watch point: The dollar continues to find safe haven support and trade in line with oil prices. However, underlying macroeconomic fundamentals make the case for a resumption of the dollar’s downtrend when hostilities are over.

EURO: The euro is little changed at $1.1704. Germany’s April HICP flash printed at 2.9% yoy (2.8% prior), in line with expectations. However, tomorrow’s European Central Bank policy decision will be the key event for the euro zone this week, with the bank expected to leave rates on hold while policymakers assess the impact of higher energy prices on the economy. Money markets are currently priced for two rate hikes this year; market-implied odds of a hike at the June meeting are pricing 81% chance of a hike. The euro is likely to continue trading opposite oil prices. Positive developments out of the US-Iran conflict will be supportive of the currency, while safe-haven demand would see flows to the dollar.

Watch point: A rate hike at the ECB’s April meeting is unlikely, while the case for tightening depends on the effectiveness of the ceasefire and duration of the rise in energy prices.

BRITISH POUND: Sterling is 0.13% lower at $1.3499, as a stalemate over peace talks to end the Iran war, together with caution ahead of a series of major central bank decisions, including the Bank of England, kept investor risk appetite in check. The Sterling has recovered all the losses incurred by the Iran war and is sitting on a gain of 2.1% for April, making this its strongest monthly performance since last August. The Bank of England is widely expected to leave interest rates unchanged at its meeting on Thursday, leaving attention centered around the voting composition and the tone of the bank’s communication. Markets are currently pricing in two rate hikes from the BoE, though any indication of limited support for hikes at this meeting among policymakers could shift expectations toward just one additional increase.

Slowing wage growth remains a key factor which could limit the BoE to one rate hike, against market expectations. The critical watchpoint, however, is whether higher energy costs begin to feed into wage demands. While an April rate hike is unlikely, policymakers will be closely monitoring whether energy price strength is translating into broader wage pressure. Rate-hike timing expectations remain subject to the evolving conflict in Iran, and the situation continues to develop. Elsewhere, politics remain in focus for the currency as Prime Minister Keir Starmer continues to face growing scrutiny for his US ambassador appointment.

Watch point: While an April rate hike is unlikely, policymakers are likely to monitor data on whether higher energy prices are leading to bigger wages demands.

JAPANESE YEN: The yen is 0.23% weaker at 159.97 yen per dollar. Weekly data shows investors have the largest bearish position in the yen since late July 2024, not long after the last round of intervention. Traders see 160 as a possible catalyst for potential intervention from Japanese authorities to shore up the currency. Despite the Bank of Japan’s decision to hold on rates, three of its nine-member board voted for rate hikes, while the bank also sharply revised up its price forecasts and stressed the risk of an inflation overshoot. The BoJ revised inflation higher to 2.7% for 2026 and cut growth to 0.5% from 1.0%. The outlook also flags “rising prices in Japan currently outweigh risks of an economic downturn.” The three dissenting votes on the board highlight growing tensions at the BoJ to raise rates in response to inflation as it was the most dissents the board has seen since January 2016. Given the elevated inflation pressures and expectations, it is likely the bank will need to raise rates in the near-term. Money markets now see a 50% chance of a rate hike come June.

The Yen has failed to hold a depreciation past the 160 level, as expectations of government intervention and eventual policy tightening offer support. However, given the lack of policy-tightening, the yen could routinely test the 160 level, with rises in oil prices. Japanese Finance Minister Satsuki Katayama said on Tuesday that the government was standing by around the clock and ready to take action against foreign exchange volatility while closely coordinating with the US.

Watch point: Geopolitical factors/oil prices remain the main obstacle to appreciation against the dollar, even despite policymakers commitment to raise rates.

AUSTRALIAN DOLLAR: The Aussie is 0.31% lower to $0.7158 as data showed core inflation rose a little less than expected in the first quarter, although the ongoing impact of surging energy costs still has traders anticipating further interest-rate hikes. Australia’s key trimmed-mean measure of core inflation, rose 0.8% in the first quarter, slightly below market expectations of 0.9% or higher. The annual pace still nudged up to 3.5%, and further away from the Reserve Bank of Australia’s target band of 2%-3%, while consumer price inflation for March accelerated to 4.6%. Markets are pricing an 80% chance that the RBA will hike rates for a third time this year to 4.35% in May. A move to 4.60% is fully priced by September, which would take rates to the highest point since late 2010. While a durable ceasefire would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to keep the RBA on a tightening path.

Watch point: The RBA is likely to maintain its tightening bias amid persistent inflationary pressures.

TREASURY FUTURES

Yields are little changed across the curve, with the 2Y leading a modest bear-flattening bid. Current levels: 3M 3.681% (+0.3 bps), 2Y 3.861% (+1.7 bps), 5Y 3.999% (+1.5 bps), 10Y 4.366% (+1.3 bps), 30Y 4.952% (+0.8 bps). The 2/10 spread stands at 49.70 bps (essentially flat from 51 bps prior session), the 5/30 spread is at 95 bps (1 bp narrower from 96 bps), and the 3M/10Y spread is at 69 bps (uninverted, 1 bp wider from 67 bps). Today’s action will center around Fed Chair Powell’s tone and any tweak from “solid” to “moderate” growth language. Another question is whether Powell is going to hold the governor seat until 2028, or whether he chooses to resign after the expiry of the Chair term. The historical norm is for Chair to step down after their term is over. Now that the investigation into Powell has been dropped, that path for him to do so is much more open.

TIPS markets show the 5-year breakeven at 2.63%, the 10-year breakeven at 2.44%, and the 5y5y forward rate at 2.25%. The spread between the 5-year and 10-year breakevens of +19 bps continues to weaken from the +23 bps print last Wednesday, suggesting the inflation back-up is no longer purely front-loaded but is broadening modestly into longer-horizon expectations. With the 5y5y forward at 2.25%, still below the 2.5% de-anchoring threshold but holding fresh local highs after the +12 bps weekly move, the Fed retains optionality to treat near-term CPI acceleration as transitory, but the trajectory is now the chief constraint on Powell’s ability to sound dovish at his presser. However, 2-year inflation swaps have moved higher and are nearing 3%, a worrying sign from markets that inflation could remain elevated.

Market expectations for Fed easing have been pushed further out, though the broader policy outlook remains dovish. Markets are no longer pricing in cuts for 2026 and assign roughly a 20% probability to a first move in July 2027, down from 44% on Monday.

Watch point: Fed policy is poised to stand pat for the time-being, though a path to loosening remains open. Well-anchored inflation expectations should offer resistance to higher yields, while also supporting the case for Fed easing later in the year.

 

 

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