Despite disappointing earnings from world's second biggest company and Mag 7 titan, Microsoft, global stocks rallied on Wednesday, with Nasdaq 100 index futures jumping, as a flurry of bullish news powered a rebound in technology stocks ahead of today's Fed meeting. US equity futures are higher with Tech leading and Semis outperforming: NVDA +5% pre-mkt following AMD’s earnings (+9.3%) and a positive read-thru from MSFT earnings even though Microsoft itself is down 3% (cutting losses from as much as 7% and is the only member of Mag7 in the red). As of 7:45am ET S&P futures were up 0.9% with Nasdaq futures surging more than 1.5% as the AI trade appears to remain intact despite yesterday's latest tech rout. Bond yields are flat and USD is weaker ahead of today's FOMC decision where Jerome Powell is expected to signal a potential rate cut for the US in September later today (see our preview here) as the yen soars after the BOJ surprises with a hawkish hike even as its economy careens of a cliff assuring this will be the shortest hiking cycle in recent history. Commodities higher led by energy following yesterday’s supply drawdown and relief rally as WTI has seen ~8% drawdown this month; oil extended gains after Hamas said Israel killed its political leader, stoking tensions in a region that produces around a third of the world’s crude. Today, we receive ADP (which has not been predictive of NFP) and the Fed decision. Mag7 earnings continues with META.
In premarket trading, Dutch ASML Holding and other semiconductor shares surged 11% after Reuters reported of an apparent flip-flop in US plans, now looking to exempt chip-equipment makers in Japan, the Netherlands and South Korea from upcoming export restrictions, refuting the Bloomberg report 2 weeks ago that the US floated trade rules to rein in China's chip industry. Nvidia added 6% as Morgan Stanley said the selloff has opened up a good entry point. That said, the Kamala administration is still under pressure to take additional steps to curb Beijing’s technological developments, and the semiconductor-production equipment companies may still face constraints on selling to Chinese companies, people familiar with the situation told Bloomberg. Meanwhile, Microsoft shares slid after its Azure cloud-computing service posted a slowdown in quarterly growth. Revenue from Azure, Microsoft’s main growth engine in recent years, rose 29% in the fiscal fourth quarter, compared with a 31% jump in the previous period and whispers of a 32% increase. On the other end, AMD jumped 8% after the chipmaker gave an upbeat revenue forecast, underscoring that its new artificial intelligence processors are boosting growth. Here are other notable premarket movers:
Now investors are awaiting results from Meta Platforms due after the close today, with the firm’s AI investments expected to be in focus. It's an action-packed day ahead in markets, where we also get Powell signaling a potential rate cut for September.
Tech stocks had been hammered in recent days as earnings failed to live up to sky-high expectations and traders speculated that the artificial intelligence frenzy had become excessive.
“I’m really satisfied with the earnings of AI stocks, it proves that it’s not a bubble,” said Fares Hendi, portfolio manager of at SG Prevoir in Paris. “The selloff wasn’t related to earnings but rather on valuation and some investors worrying about a bubble, but that’s not the case. For the moment, the cycle goes on.”
Elsewhere, the Bank of Japan raised its benchmark interest rate and unveiled plans to cut its bond purchases (by far less than expected), underscoring its determination to normalize monetary policy. The yen strengthened 1.5% against the dollar and equities advanced after the decision, led by a surge of almost 5% in bank stocks.
“It fits under the umbrella of normalization, whether that’s from the BOJ or what we hear from the Fed later,” Grace Peters, global head of investment strategy at JPMorgan Private Bank, said in an interview with Bloomberg TV. “The theme of normalization is what we need to see to continue supporting equity markets and risk assets more broadly.”
Europe's Stoxx 600 is up 0.9%, as ASML leads a rally in European technology shares after Reuters reported the Biden administration planned to exempt chip-equipment makers in Japan, the Netherlands and South Korea from upcoming export restrictions. Meanwhile, euro-area inflation unexpectedly quickened, an outcome that may make the European Central Bank warier about cutting interest rates further when it meets in September. The DAX is lagging peers given the inflation metrics, though strength in Airbus’ German listing is providing support alongside strength in Infineon. FTSE 100 outperforms with mining names outperforming and supporting with post-earnings strength in HSBC and the housing sector with Taylor Wimpey supporting.
Asian stocks advanced as Chinese shares recouped some of their recent losses, while Japanese shares erased earlier declines after the Bank of Japan raised interest rates. The MSCI Asia Pacific Index rose as much as 2.2%, boosted by gains in semiconductor shares after Reuters reported the Biden administration planned to exempt chip-equipment makers in some US allies from export restrictions. Wednesday’s jump helped put the regional benchmark on track for a third-straight monthly advance.
Key equity gauges in mainland China and Hong Kong climbed about 2%, with the CSI 300 Index capping its best day since February, as the latest sign of slowing economic growth spurred bets on stronger support measures from Beijing. Australian stocks rose after the nation’s core inflation unexpectedly decelerated last quarter, supporting the case for central bank easing.
In FX, the dollar declined against every Group-of-10 currency apart from the Australian dollar. The Japanese yen advances 1.5% against the US dollar - pulling USD/JPY down to 150.10 - after the Bank of Japan raised its benchmark interest rate and unveiled plans to halve bond purchases. The Bloomberg Dollar Spot Index is down 0.3% ahead of the Federal Reserve decision later on Wednesday.
In rates, treasuries were little changed with 10Y yields trading at 4.13%. Gilts lead gains in European government debt ahead of the Bank of England decision on Thursday. Bunds are off the highs after euro-area inflation unexpectedly accelerated in July.
In commodities, oil prices advance on rising geopolitical risks after Hamas said Israel killed its political leader with an airstrike. US crude futures rise 2.6% to $76.70 a barrel. Spot gold adds $9 to around $2,420/oz.
Bitcoin is holding around the USD 66k handle which keeps it toward the mid-point of parameters. Ethereum rebounded back over $3,300 following a surge in buying by the Blackrock ETF.
Today's economic data slate includes July ADP employment change (8:15am), 2Q employment cost index (8:30am), July MNI Chicago PMI (9:45am, several minutes earlier for subscribers) and June pending home sales (10am). Of course, the Fed will reveals its rate decision at 2pm ET.
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APAC stocks gained heading into month-end as participants digested a slew of data releases and the BoJ policy decision. ASX 200 was led by strength in energy and tech, while domestic yields were pressured after mostly softer inflation data. Nikkei 225 declined heading into the BoJ policy decision after rate hike bets were boosted following several local press reports that the central bank is to consider a 15bps rate increase and although the hike materialised, the Bank's taper plan was less aggressive than many had called for. Hang Seng and Shanghai Comp. gained as participants digested the latest Chinese PMI data in which headline Manufacturing PMI topped forecasts despite remaining in contraction territory, while Non-Manufacturing PMI matched estimates.
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Stocks in Europe opened mostly firmer as the optimism from Asia-Pac reverberated into Europe, Euro Stoxx 50 +1.1%. Modest downside in the European bourses was seen on the hotter-than-expected EZ Flash HICP numbers, though this was within ranges and only modest in nature. Sectors mostly positive, outperformance in Tech as AMD and US exemption reports lift constituents in the sector; Basic Resources benefit from the rise in base metals following Chinese PMIs; Energy names following the underlying benchmarks. DAX 40 +0.6% firmer, but lagging peers given the inflation metrics, though strength in Airbus’ German listing is providing support alongside strength in Infineon. FTSE 100 1.3% outperformers with mining names outperforming and supporting with post-earnings strength in HSBC and the housing sector with Taylor Wimpey supporting. Note, technical issues are ongoing at SIX which is impacting on equity trade in Spain and Switzerland.
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