Market snapshot: all eyes on Federal Reserve and MPC

The meeting of the Federal Reserve will talk rescue plans, while UK policymakers share their views.

Investors continue to anticipate speedy economic recoveries as the powerful forces of accelerating vaccine rollouts and significant financial assistance combine.

The passage of the $1.9 trillion American Rescue Plan is set to release another boost to a US economy which was already showing some signs of a turnaround. Indeed, the current fear is that the package could actually overheat the economy, and the meeting of the Federal Reserve later in the week will need to allay that concern.

In particular, the inflation worries which have been most clearly in evidence in the bond markets of late will be a central theme of discussion. In turn, in providing its own economic projections, the Fed will reveal whether the pathway towards eventually raising interest rates has been affected.

The prospects for a strong rebound has also seen the continuation of the rotation theme, with more traditional and cyclical stocks the subject of renewed investor interest and, to some extent, at the expense of the previously all-firing growth stocks, and big tech in particular.

Given the nature of its constituents, the main beneficiary from the rotation has been the Dow Jones Industrial Average, which hit yet several record highs last week and is now ahead by 7.1% in the year to date. The S&P 500 is also in strongly positive territory, up 5%, while the Nasdaq has seen its early year gains trimmed, although is still ahead by 3.4% in 2021.

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The UK has quietly continued its solid progress amid the raft of considerations, and currently stands up by 4.9% in the year to date.

A better than expected GDP number last week, a levelling of sterling and an increasingly positive external view of UK prospects has tempted some international investors to test the waters. Current thoughts from the Monetary Policy Committee later in the week should provide further colour to immediate prospects.

Indeed, the UK’s premier index is dominated by mature and cyclical businesses and this could also play into the current rotation ahead of the expected economic bounce over the coming months.