Updated at 8:49 am EST
U.S. equity futures bumped higher Wednesday, powered by a spate of better-than-expected big tech earnings after the close of trading yesterday that helped boost sentiment ahead of a crucial Fed rate decision later in the session.
Bets on a 75 basis point hike have been largely priced-in for today’s meeting, capping gains for U.S. Treasury bonds and holding the dollar near to the highest levels against its global peers in more than two decades.
That expectation, however, comes against a very different economic backdrop than when the Fed delivered its previous 75 basis point hike in June. That could set the stage for Chairman Jerome Powell to hint towards smaller moves in the coming months, or indeed a pause in tightening altogether, should the economy tip deeper into recession.
Still, markets expect Powell to hold course at today’s meeting, repeating the Fed’s pledge to bring down inflation while easing the burden of price increases on low-income households.
“We doubt Powell will be drawn into making any predictions of a slower pace of tightening as soon as the next meeting,” said Ian Shepherdson of Pantheon Macroeconomics. “If he does, you can expect a substantial stock rally, a bull steepening of the Treasury curve, and a drop in the dollar.”
The persistent dollar strength, meanwhile, has added a headwind to U.S. corporate earnings as companies pay more to repatriate their overseas sales, and profits, into greenbacks. And with more Fed hikes on tap, including a likely 75 basis point move in September, many companies have told investors to expect dollar-related pressures for much of the second half of the year.
Last night’s earnings slate, however, looks to have eased at least some of those concerns, with Microsoft (MSFT) – Get Microsoft Corporation Report issuing a bullish near-term outlook despite the currency headwinds and Google parent Alphabet (GOOGL) – Get Alphabet Inc. Report defying predictions of an ad market meltdown. Visa (V) – Get Visa Inc. Report, as well, topped Street forecasts and indicated it isn’t seeing any signs of a slowdown in consumer spending.
Bristol Myers (BMY) – Get Bristol-Myers Squibb Company Report, T-Mobile US T (TMUS) – Get T-Mobile US Inc. Report, Boeing (BA) – Get The Boeing Company Report and Kraft Heinz (KHC) – Get The Kraft Heinz Company Report are scheduled to report June quarter earnings prior to the start of trading, with Meta Platforms (META) – Get Meta Platforms Inc. Report, Qualcomm (QCOM) – Get QUALCOMM Incorporated Report and Ford (F) – Get Ford Motor Company Report expected after the closing bell.
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Collective S&P 500 earnings for the second-quarter are forecast to grow by around 6.2% from last year, to a share-weighted $467.2 billion, but that pace is largely the result of record profits for the energy sector. Stripping away that contribution leaves earning down 3.2% from last year, according to Refinitiv data.
A solid set of European earnings this morning, including a 51% leap in profits for German lender Deutsche Bank, helped the region-side Stoxx 600 post modest early gains in Frankfurt, offsetting reports of reduced gas flows through the Nord Stream 1 pipeline controlled by Russia-owned energy giant Gazprom.
In the U.S, benchmark 2-year note yields edged higher, to 3.061% ahead of today’s Fed decision at 2:00 pm Eastern time, while 10-year notes were pegged at 2.792% in early New York dealing.
On Wall Street, futures tied to the S&P 500 are indicating a 34 point opening bell jump while those liked to the Dow Jones Industrial Average are priced for a 145 point gain. Futures linked to the tech-focused Nasdaq are indicating a 180 point advance.
Alphabet shares jumped 3.75% in pre-market trading after the search and ad sales giant posted modestly softer-than-expected second quarter revenues, defying concerns of the ad-spending meltdown forecast last week by messaging app maker Snap Inc. SNAP.
Microsoft shares were up 3.4% after the tech and cloud computing giant issued a robust near-term profit forecast that offset a dollar-weakened set of fourth quarter earnings.
Boeing (BA) – Get The Boeing Company Report gained 2.8% despite a wider-than-expected second quarter loss as it repeated its forecast to turn cash-flow positive thanks in part to improving supply chains and a bulging $372 billion aircraft order backlog.
Visa shares, meanwhile, edged 0.2% lower after the credit card issuer posted stronger-than-expected third quarter earnings as cross-border transactions topped pre-pandemic levels for the first time in more than two years.
Bristol Myers Squibb (BMY) – Get Bristol-Myers Squibb Company Report was also in the red, falling 2% despite posting stronger-than-expected second quarter earnings and repeating its full-year profit forecast, powered once again by solid sales gains for its cancer and blood clot treatments.