Morning Market Update: Federal Reserve and Big Tech

Morning Market Update: Federal Reserve and Big Tech

Wall Street Gears Up for Crucial Test of Big Tech Stocks Amidst Fed Meeting

The earnings report due of Microsoft and Alphabet could prove to be an indicator of the extraordinary rise of Big Tech shares this year. While Federal Reserve officials commence their two-day policy conference, Wall Street is closely following the report and anticipating the impact they will have on the markets.

Chinese Stocks Recover, Bolstering Global Markets

In the wake of a misguided announcement from the ruling Politburo that praised the "tortuous" growth of the economy in China Monday, weak Chinese stocks saw a delayed however much-needed bounce. Hong the Hong Kong's Hang Seng index (HSI) saw a snapback of 4 which was partially fueled by a significant 12% rise in the struggling housing industry (HSMPI). The wider blue chip CSI 300 Index (CSI300) was also up, ending the losing streak of six days by gaining 3 due to the purchase of the support of state-owned banks which supported the Chinese yuan.

European Markets Subdued Amid Tightening Credit Conditions

Contrary to the ebullient market sentiment however, the mood of the market in Europe was a bit more restrained. Recent surveys of large banks, conducted by the European Central Bank revealed a decrease in the demand of business loans in the 2nd quarter. Credit conditions were tighter, which resulted in the lowest level of demand for loans over the course of 20 years in the survey's history. Furthermore, German business confidence displayed declines this month in addition to the general skepticism.

Diverging Global Demand Pulse

The divergent reports can cause confusion regarding the pulse of global demand in the days leading up to our Fed meeting. The report shows declining U.S. business sentiment in July. However, it indicates overall increases in activity and activity, in contrast to the euro zone where there is a slowdown.

Sources form Reuters

Euro/Dollar Exchange Rate Impacted by Reports

In the wake of these reports that the exchange rate between dollars and euros decreased, as did an enduring uncertainty regarding the pace of demand across the globe in the lead-up to next week's Federal Reserve meeting. Although there were reports of decreasing U.S. business sentiment in July, there was general growth in the economy, as opposed the euro zone that was experiencing a decline.

Oil Prices and Treasury Yields Experience Volatility

The price of crude oil jumped into three-month records because of a major U.S. refinery outage and expectations of a stimulus package from China. But a tepid auction resulted in a 10- basis point increase in the 2-year Treasury yields, resulting in an uncertain financial environment. In the aftermath, oil prices as well as Treasury yields have retraced some their gains. Year-on-year oil price drops were apparent at greater than 21 percentage. The gauges of volatility, VIX (VIX) were also down from their previous two week highs.

Nasdaq 100 Index Rebalances with No Major Market Impact

Rebalancing the Nasdaq 100 index didn't lead to any noticeable market reactions. Although weightings of some big caps were pared down to reduce "over-concentration," it didn't cause significant disturbances in the market.

Investors Anticipate Mega Caps' Earnings Reports

The earnings season is now underway Investors are anxiously waiting for the post-hours earnings reports of technology majors Microsoft (MSFT.O) as well as Alphabet (GOOGL.O). Markets are focusing on these reports, specifically due to the massive rises in the market for AI-related stocks as well as the record-breaking valuations this year.

Fed Decision Looms Large

The market's movements leading on Wednesday's Fed decision could be limited in the meantime as investors wait in anticipation of the result. The futures market is currently scheduled for another quarter-point hike in the rate, which would set the price between 5.25-5.50 percent. The market is indicating that this could be the last rate hike in this period and the likelihood of a second hike later on in the year falling to less than 50 percent. But, expectations of easing for the next 12 months is gradually being reined into.

Sources from Reuters

Events to Watch on Tuesday

Alongside the above-mentioned market events The investors must be aware of the following developments on the eve of Tuesday:

  • U.S. Corporate Earnings: Microsoft, Alphabet, Texas Instruments, NextEra Energy, Visa, Invesco, GE, GM, Dow, Danaher, Corning, Kimberly-Clark, Biogen, Verizon, Moody's, EQT, 3M, Universal Health, Chubb, Dover, Nucor, Paccar, Sherwin-Williams, Archer-Daniels-Midland, etc.
  • U.S. July Consumer Confidence, Richmond Fed July Business Survey, Philadelphia Fed July Service Sector, May House Prices.
  • The Federal Reserve's Federal Open Market Committee starts the two-day meeting, with the scheduled decision set on Wednesday.
  • International Monetary Fund updates World Economic Outlook.
  • U.S. Treasury auctions 5-year notes.


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