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Morning Briefing – July 26th, 2023

Market Sentiment and Federal Open Market Committee (FOMC) Decision

Today, the market landscape could lean towards a slightly weaker opening as investors set their sights on the FOMC policy decision scheduled for 2:00 p.m. ET. Expected to be closely followed by a press conference featuring Fed Chair Powell at 2:30 p.m. ET, market players are geared up for what they anticipate will be a rate hike of 25 basis points. The key interest, however, will likely be in the commentary provided by Mr. Powell.

Recent Earnings Reports and Market Reactions

Investors are also reacting to a flurry of earnings reported since yesterday’s market close. Yesterday’s post-close reporting was primarily led by Microsoft (MSFT) and Alphabet (GOOG), which have had mixed responses. This morning’s calendar was topped by Dow components Boeing (BA) and Coca-Cola (KO).

Microsoft (MSFT), despite beating earnings and revenue forecasts, saw a drop of 3.6% as Azure’s revenue growth barely met the upper limit of prior guidance and the Q3 revenue outlook came in slightly below consensus. Alphabet (GOOG), on the other hand, saw an upward trajectory of 5.8% on the back of earnings and revenue outperformances, along with notable growth in their generative AI platforms.

Other prominent reports include a dip in the shares of Texas Instruments (TXN), Snap (SNAP), and Thermo Fisher (TMO) despite beats on earnings and revenues. In contrast, Coca-Cola (KO) and Boeing (BA) saw a rise in their stock prices post-beat.

The Bond Market and Economic Data

In the bond market, the yield on the 2-year note is down three basis points to 4.87%, while the 10-year note yield has similarly dropped two basis points to 3.89%.

Additionally, investors will be keen to assess various economic data sets that will be released today. This includes the Weekly MBA Mortgage Index at 7:00 ET, June New Home Sales data at 10:00 ET, and the Weekly crude oil inventories at 10:30 ET.

Corporate News

Significant corporate news includes Microsoft’s FY24 outlook, Ruth Porat’s new role at Alphabet, Texas Instruments’ Q3 earnings projection, and merger confirmation between PacWest and Banc of California.

Snap’s disappointing Q3 revenue guidance, despite an increase in Daily Active Users (DAUs), and Texas Instruments’ lukewarm Q3 EPS projection despite overall revenue being in line, have both contributed to the morning’s sentiment.

Global Equity Decline

Global equities, on the other hand, witnessed a decline on Wednesday, as investors braced for more tightening policies from the Federal Reserve. This is despite mixed results from some of the largest European and American companies hinting at a potentially weakening economy.

Technology Sector Update

Nasdaq 100 index contracts were strained by underwhelming results from prominent constituents. Microsoft Corp. shares slid by as much as 3.9%, reflecting slow sales growth and the prediction of a slowdown in its cloud-computing business. Meanwhile, social media giant Snap Inc. plunged by 19% on the back of results. Chipmakers also felt the pressure, with the largest analog semiconductor maker, Texas Instruments Inc., suggesting a slump in demand for key types of electronics.

In contrast, Alphabet Inc. saw a jump of about 7% after posting forecast-beating revenue, whilst Meta Platforms Inc. advanced ahead of its own report later on Wednesday.

European Market Update

European markets had to swallow a mix of results, with luxury-goods sector heavyweight LVMH slumping as much as 4.5%. This was primarily attributed to indications of a spending slowdown by wealthy US consumers, pulling the European benchmark lower after six days of consecutive gains.

Earnings Season Overview

Despite some disappointments, approximately 80% of US companies have managed to beat profit estimates so far, with half of European firms also achieving this feat. This is largely due to a continuous downscaling of expectations ahead of the earnings season.

Federal Reserve and European Central Bank (ECB) Rate Hikes

Later today, the Federal Reserve is expected to raise rates by 25 basis points, with swap contracts pricing in further increases by year’s end. The European Central Bank (ECB) is also projected to deliver a quarter-point increase on Thursday. With these hikes already anticipated, investors will turn their attention towards how much additional policy tightening might be necessary.

US Economy and Global Economic Growth

Recent data suggests a soft landing for the US economy. The Dow Jones Industrial Average has risen 12 days straight, marking the longest winning run in over six years. A 13th day of gains will extend the record to the longest since 1987.

Despite some deceleration, growth remains somewhat resilient, which led the International Monetary Fund (IMF) to raise its outlook for the global economy. They now expect the global GDP to expand by 3% in 2023, albeit slower than last year’s 3.5%, but faster than April’s 2.8% projection.

Currency and Commodity Markets

In the currency market, a measure of the dollar edged lower, while the yen strengthened for a third day on speculation the Bank of Japan could indicate a shift away from ultra-loose policies at its Friday meeting. Meanwhile, treasury 10-year yields remained steady while oil prices retreated after a four-day rally.

In conclusion, today’s trading scene will be heavily influenced by both the FOMC decision and the Federal Reserve’s overall economic sentiment. Corporate earnings and economic data reports will also play a significant role, with a particular focus on tech giants and other industry leaders. The overall economic outlook, both domestically and globally, also suggests a continued watchfulness over market trends and potential policy shifts.




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