Market Wraps
Watch For:
New Home Sales for June; EIA Weekly Petroleum Status Report; Fed interest rate decision; earnings from AT&T, Boeing, Coca-Cola, Meta Platforms
Today’s Headlines/Must Reads
– Should Fed Stick to Script With Rate Hike as Inflation Wanes?
– Biotech Stocks Join AI-Fueled Rally
– Google and Microsoft Paying Big to Play in AI
– Threads Isn’t Labeling Propaganda Accounts From Russia, China State Media
Opening Call:
Moves in equity index futures were meager in early action on Wednesday as traders eschew bold bets ahead of the Federal Reserve’s monetary policy decision.
The central bank is widely expected to raise interest rates by another 25 basis points to a range of 5.25% to 5.50%, but markets are unsure whether that will mark the end of this current tightening cycle.
Consequently, it is the Fed’s accompanying statement and comments from Jerome Powell at his press conference that will carry the greater heft, as investor seek guidance on the future trajectory for borrowing costs.
“A +25bp hike is largely expected but that is not what will move markets. It is the qualitative views around the Fed’s sense of progress on the inflation war that matters,” Fundstrat said.
It added that given the Fed’s likely comments and how the market is set up, he thought the probabilities favor an S&P 500 rally post-FOMC of greater than 1%.
Premarket Movers
Shares of Alphabet were up 6.7% after it reported second-quarter earnings that were better than expected and announced that its CFO would become president and chief investment officer starting in September.
Microsoft reported fiscal fourth-quarter earnings and revenue that beat Wall Street expectations but the stock was down 3.9% in premarket trading after revenue guidance for the fiscal first quarter came up shy of estimates and the company highlighted the rising costs of its investments in artificial intelligence.
PacWest Bancorp rose 36% after agreeing to be acquired by Banc of California in an all-stock deal.
Snap was down 18% after it issued a forecast for third-quarter sales that was below expectations.
Texas Instruments posted second-quarter earnings that topped analysts’ expectations but issued a revenue forecast for the third quarter that was slightly below estimates. The stock fell 2.9%.
Forex:
Although the Fed is widely expected to raise rates by 25 basis points in its decision later, the accompanying announcement should point to a risk of further increases and be “mildly positive” for the dollar, ING said.
“We think it is too early to remove key language from its statement that further tightening may be appropriate after today’s 25bp hike,” ING said, adding that the Fed may want to push back against the 100 basis points of easing priced in for 2024.
The DXY dollar index has potential to rise towards 102.00, ING said.
Energy:
Oil prices edged lower as investors await the outcome of the FOMC meeting and “any signal from the Fed that they have more to do will likely put some downward pressure on risk assets, including oil,” ING said.
Metals:
Base metals weakened while gold rose ahead of the Fed’s call on interest rates, with Deutsche Bank saying the bigger question for markets will be if the statement and presser signal anything about the likelihood of further hikes ahead.
Today’s Top Headlines
Google and Microsoft Paying Big to Play in AI
Google and Microsoft are two very different businesses chasing the same Next Big Thing. Fortunately, both are doing well enough to provide the sizable funds needed for that effort.
The two reported relatively strong results for the June-ended quarter late Tuesday, featuring improved revenue growth and profitability as a result of cost reductions. Google’s core advertising business returned to growth following two straight quarters of declines, while Microsoft’s cloud and enterprise software businesses beat Wall Street’s projections for the final quarter in its fiscal year, despite slowing corporate spending on technology across the globe.
Meta’s Threads Isn’t Labeling Propaganda Accounts From Russia, China State Media
State-backed news outlets from Russia and other authoritarian governments have rushed to join Meta Platforms’ new Threads microblogging service, posting propaganda such as a fake video purporting to show President Biden in a store perusing books on dementia.
Unlike on Facebook and Instagram, their verified accounts on Threads aren’t labeled as state-controlled media, raising questions over how the Facebook parent intends to police content on its Twitter rival that launched this month. Twitter, now being rebranded as X, in 2020 began applying labels to state-run news organizations; under Elon Musk, it removed them in April.
Elon Musk’s Rebranded Twitter Cuts Ad Prices
X Corp. is cutting ad prices as it tries to woo brands back to the Elon Musk-owned platform.
The social network formerly known as Twitter is offering new incentives on certain ad formats in the U.S. and U.K. and warning brands that they will lose their verified status unless they reach certain spending thresholds, emails sent this week to advertisers and viewed by The Wall Street Journal show.
Fed Set to Raise Rates to 22-Year High. Here’s What to Focus On.
The Federal Reserve is set to raise interest rates by a quarter-percentage point on Wednesday to a 22-year high, with most investors focused on what it would take for the central bank to lift rates again later this year.
Economic growth has likely been too firm in recent months for Fed Chair Jerome Powell to signal that Wednesday’s increase in the Fed’s benchmark short-term rate will be the last of the current tightening cycle, as investors anticipate. The recent slowdown in inflation also makes it hard for central bank officials to firm up plans for any additional rate increase.
Foreigners Will Benefit From U.S. Climate Subsidies, and That Is Good News
Foreign firms are shaping up to be some of the biggest beneficiaries of America’s new climate-focused industrial policy law, the Inflation Reduction Act. Japan’s Panasonic, for example, estimates it could reap $2 billion a year from tax credits associated with battery plants in Nevada and Kansas.
Is that a problem?
China Probed Covid-19 Policy Leaks by Ex-Government Officials
China’s heightened scrutiny of the expert-network firms that investors and international businesses rely on for information about the country began much earlier than is commonly believed.
Last autumn, in a previously unreported investigation, national-security agents showed up at some of those firms looking to track down leaks around China’s highly sensitive Covid policies and vaccine strategy. The investigators asked people at one consulting firm in Shanghai if they had arranged meetings or calls with experts who had inside knowledge of the country’s healthcare policy, according to a person familiar with the matter.
Ron DeSantis Shifts Strategy After Staff Cuts, Drop in Polls
Ron DeSantis and his allies are shifting gears as his struggling presidential campaign faces questions about whether he has veered too far to the right and failed to tell a positive story about himself and his vision for the country.
The Florida governor is slipping in polls, and his second-place status to front-runner Donald Trump is now under threat. On Tuesday the DeSantis campaign laid off nearly 40 staff members, roughly the total number employed by Trump’s campaign. It also plans to slash travel and event costs as it seeks to reassure supporters of his readiness for the national stage.
Kevin McCarthy Says House on Track to Pursue Biden Impeachment Inquiry
WASHINGTON-House Speaker Kevin McCarthy (R., Calif.) signaled the House is on a clear course to pursuing an impeachment case against President Biden, citing claims of corruption tied to his son Hunter Biden’s overseas business dealings.
“This is rising to the level of impeachment inquiry,” McCarthy said Monday night on Fox News. “I believe we will follow this all the way to the end, and this is going to rise to an impeachment inquiry the way the Constitution tells us to do this.”
Conservatives’ New Warnings Put Squeeze on GOP Leaders
WASHINGTON-House Speaker Kevin McCarthy’s streak of getting must-pass bills through the chamber looks increasingly at risk, with fiscal conservatives flashing new warning signs that they could delay or derail his plans on government spending.
Members of the conservative House Freedom Caucus and their allies warned Tuesday that they weren’t yet ready to support a pair of spending bills that are scheduled to be on the floor this week, saying that they want to see revised versions that House Republican leaders are putting together. GOP leaders have been in talks with fiscal conservatives since last week in hopes of identifying new spending cuts.
Source: Dow Jones Newswires