Tuesday Jul 30 2024 14:15
5 min
Concerns over expensive tech stocks and rising AI capital expenditures partly contributed to last week's market shakeout and “rotation” out of Big Tech shares. Microsoft's quarterly earnings report, due later on Tuesday, is expected to be a key moment for markets, just as the Federal Reserve's latest policy meeting gets underway later today.
This week, markets face the challenge of three major central bank decisions from the Fed, Bank of England, and the Bank of Japan, the July U.S. employment report on Friday, as well as four major U.S. tech earnings reports.
Amid uncertainty surrounding the outcome of the U.S. election, caution ahead of this week's events has kept major macro prices steady. U.S. stock futures were slightly higher ahead of Tuesday's opening, while Treasury yields and the dollar index (DXY) edged up.
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The anticipation of the Fed's policy decision on Wednesday, possibly preceded by a tightening move from the Bank of Japan earlier in the day, may temper the immediate reaction to the Microsoft earnings report.
Investors are keen to see if growth in Microsoft's Azure cloud-computing business justifies the substantial investment in AI infrastructure.
Microsoft stock showed a slight decline in pre-market trading on Tuesday but rebounded after the opening bell, trading up 0.37% on the day around the $428 mark.
Meta is set to release its earnings on Wednesday, followed by Apple and Amazon on Thursday.
For the next 36 hours, the focus will be on how the outcomes for the "Magnificent Seven" megacap tech companies intersect with the Fed meeting, where hints of a potential interest rate cut are expected.
Markets look to be betting on a Fed cut at the meeting after next, with the CME FedWatch tool indicating an 86% chance of an interest rate cut in September.
With disinflation underway, the Fed is shifting its focus to the labor market, which appears to be cooling significantly.
Although Friday's national payrolls report for July will not influence this week's Fed decision, the latest JOLTS job openings numbers will provide insights into the labor market's condition last month.
Treasury markets remained calm, buoyed by hopes of Fed easing, a reduction in government borrowing estimates for the coming quarter, and declining crude oil prices.
On Monday, the U.S. Treasury announced plans to borrow $740 billion in the third quarter, $106 billion less than the April estimate, due to lower redemptions in the Federal Reserve System Open Market Account and a higher starting cash balance. More details on the refunding schedule will be released on Wednesday morning.
Despite the uncertainty surrounding the upcoming U.S. election in November, analysts are already assessing the Treasury numbers to predict the implications for the debt ceiling, which is set to be reinstated on January 2 unless Congress suspends it again. Current estimates suggest the government could last until July or August before depleting its cash reserves.
Crude oil prices dropped to their lowest in six weeks, with a nearly 5% year-on-year loss, as OPEC+ ministers prepare to meet on Thursday and political tensions in Venezuela rise following a disputed election.
Elsewhere, the Japanese yen weakened ahead of the Bank of Japan meeting, while sterling remained steady before the Bank of England's anticipated tight decision on a potential rate cut on Thursday. The euro rose despite mixed economic data, with the Eurozone economy beating forecasts by growing 0.3% in Q2, despite the German economy's unexpected contraction in the same period.
In Europe, earnings reports also made headlines.
Standard Chartered surged nearly 6% after announcing a $1.5 billion share buyback and raising its income outlook for 2024.
UK asset manager St James's Place soared more than 20% after unveiling a six-year plan to reduce costs and revamp services, marking the stock's biggest one-day rise since 2008.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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