In the news:
- US Fed's Powell flags cuts 'as soon as' September (Yahoo)
- Stock Market News: Stocks End July With Exclamation Point (Barron’s)
- Meta Platforms delivers upbeat guidance as Q2 results beat estimates; shares jump (Investing)
- Arm stock dives 11% as slow AI gains lead to tepid outlook (Investing)
- Lam Research forecasts quarterly revenue above estimates fueled by AI boom (Investing)
- Chipmaker Qualcomm forecasts upbeat revenue, warns of trade-curb impact (Investing)
- Singapore's UOB maintains 2024 guidance even as Q2 profit misses forecasts (Investing)
Macro:
- Fed Review: The FOMC left rates unchanged at between 5.25-5.50%, but it made tweaks to its statement that appear to leave the door open to a rate cut in September. The Fed did however reiterate that it does not expect that it will be appropriate to lower rates until it has gained greater confidence that inflation is moving sustainably towards target, suggesting that the Committee still wants to see favourable data before pivoting to rate cuts. Overall, it was a dovish meeting, even though Chair Powell didn’t quite seal a September rate cut. Market continues to completely price in a rate cut in September, and data will remain in the driving seat. ISM manufacturing will be out today and then focus turns to key labor market indicators, the nonfarm payrolls, on Friday.
- BOJ Review: The Bank of Japan (BOJ) raised its target for the unsecured overnight call rate to around 0.25% from the previous 0%-0.1% range and announced a reduction in its monthly JGB purchases. The decision was well-telegraphed, but still hawkish at the margin given that the BOJ has a history of disappointing the hawks. The timing of the BOJ's rate hike appears strategic, particularly as it aligns with indications from the Federal Reserve about potential rate cuts, dampening the yield differentials that have been weighing on the Japanese yen. For a full analysis of the BOJ announcement, read this article.
- Euro-area inflation for July suggested that services inflation remains sticky at high levels. Headline inflation accelerated to 2.6% YoY from 2.5% in June, coming in above expectations. Core was unchanged at 2.9% YoY, also higher than expectations. This will make it difficult for the ECB to cut rates again in September. Markets have reduced the odds of a September rate cut from over 90% earlier to 70% now.
- US ADP national employment for July fell to 122k from the prior, revised higher, 155k and short of the expected 150k. Within the release, median change in annual pay for job-stayers and job-changers fell to 4.8% (prev. 4.9% Y/Y) and 7.2% (prev. 7.7% Y/Y), respectively, continuing to indicate a further slowdown in wage growth.
Macro events: BoE Announcement (preview here), US Unit Labor Costs (Q2), Chinese Caixin Manufacturing PMI (Jul), US ISM Manufacturing PMI (Jul)
Earnings: Modern, Conoco Philips, Amazon, Apple, Intel, Coinbase, Block, Mara
Equities: U.S. stock futures advanced on Thursday, with Nasdaq 100 futures surging nearly 1% following robust quarterly results from Meta Platforms, which lifted market sentiment. Meta Platforms soared over 7% in extended trading after delivering better than expected second quarter earnings and optimistic guidance. Conversely, Arm Holdings plummeted more than 10% due to weak guidance for the current quarter. At the close on Wednesday, the Dow gained by 0.24%, the S&P 500 by 1.58%, and the Nasdaq Composite by 2.64%, driven by a strong performance from semiconductor stocks including Nvidia (12.8%), Broadcom (12%), Taiwan Semiconductor (7.3%) and AMD (4.4%). Additionally, the market rallied as the Federal Reserve maintained its fed funds rate at 5.5% but indicated potential rate cuts in September if inflation improves. Investors now await the crucial monthly jobs report on Friday.
Fixed income: Treasuries climbed to near session highs after extending gains during Fed Chair Powell’s press conference. This marked the third consecutive month of gains, the longest winning streak for US bonds in three years. Fed-dated OIS contracts indicated growing confidence in a 25 basis point rate cut at the September policy meeting, with a slight chance of a half-point cut also being considered. The yield curve steepened as the front-end and belly outperformed, reversing earlier flattening moves in the 2s10s and 5s30s spreads. Treasury yields improved by 4 to nearly 7 basis points across the curve.
Commodities: WTI crude futures rose 4.26% to $77.91 due to Middle East conflict fears, but monthly gains were limited by production uncertainties and weak Chinese demand. Brent crude gained 2.66%, closing at $80.72. Gold prices hit a record high of $2,473 (+0.86%) on expectations of rate cuts and Middle East tensions. The Gold Fear and Greed Index rose to 78/100. Investors are now focused on the Federal Reserve's upcoming decisions as the September meeting approaches. US natural gas futures dropped below $2.05 per MMBtu as milder weather forecasts reduced expected demand for air conditioning.
FX:The US dollar weakened with the Federal Reserve keeping the door for a September rate cut open. Gains were led by the Japanese yen, that got three supportive legs from a Bank of Japan rate hike, the Fed’s indication of a September rate cut, and risk aversion coming into play as geopolitical tensions in the Middle East escalated. The euro however remained on the backfoot as sticky Euro-area inflation continued to question whether the June ECB rate cut was a policy mistake. The Australian dollar saw a decline earlier on Wednesday as Australia’s Q2 inflation came in softer, ruling out the possibility of a rate hike from the Reserve Bank of Australia next week, but it recovered later as the US dollar weakened. The British pound will be in focus today as it still remains the G10 outperformer year-to-date and the Bank of England meeting announces its policy decision today.
For all macro, earnings, and dividend events check Saxo’scalendar.
For a global look at markets – go toInspiration.
