Bank of Japan rises as Fed leads, big tech companies fail

A Day Ahead View in US and Global Markets by Mike Dolan

Regardless of the patterns of an already busy year, markets are digesting a huge amount of information in a very short space of time – with the Bank of Japan’s interest rate hike and Microsoft’s earnings disappointment in the final portions on the final day July.

Just hours before the Federal Reserve approved the first US rate cut in September, the Bank of Japan raised its official rate to 0.25% – causing the yen to rise and pulling dollar/yen back to 150 for first time since March.

Despite months of speculation, the rate change came as a surprise to a market that had only seen a 50% chance of a change this week.

Furthermore, the Bank of Japan also revealed a detailed plan to slow its massive bond buying, taking another step towards phasing out a decade of massive stimulus as inflation normalizes and boosting government bond yields. to its highest level in 15 years.

Although the yen initially hesitated after the decision and Japanese stocks ended higher, comments from BOJ Governor Kazuo Ueda suggested that further tightening may be in the offing.

“If the economy and prices move in line with our projection, we will continue to raise interest rates,” Ueda told reporters.

With the Fed’s decision released later, the shock in Japan did little to disturb U.S. Treasuries and 10-year yields hit a four-month low on Wednesday morning. Influenced largely by the yen, the dollar index also fell.

With the resumption of disinflation in the US and the central bank focusing on easing the labor market, a big week for employment statistics is being closely watched.

Jobs data on Tuesday showed signs that hiring was slowing last month and private sector payroll readings for July later today are expected to deliver a fresher national jobs report on Friday as well.

Interest rate markets also masked a rise in crude oil prices from nearly two-month lows as tensions in the Middle East rose several notches and fears of a regional escalation of the conflict grew.

Hamas leader Ismail Haniyeh was assassinated in the early morning hours in Iran, less than 24 hours after Israel claimed to have killed a senior Hezbollah commander in Beirut.

But the general outlook for oil remains moderate, with year-on-year price variations still negative at around 5%.

One eye is also on the political unrest in OPEC producer Venezuela, where protesters took to the streets on Tuesday to demand that President Nicolás Maduro recognize that he lost Sunday’s elections to the opposition.

Oil is also paying attention to weak Chinese demand, where July business surveys show that the industry is still contracting and that business activity in general weakens close to stagnation.

The story continues

And yet, China stocks jumped more than 2% in their biggest daily gain in more than five months – led by consumer and technology stocks, as investors welcomed a Politburo meeting that underscored the need to boost the consumption.

In addition to the Fed, nervousness from big technology companies was running high on Wall Street.

Microsoft shares fell nearly 3% before Wednesday’s open after its post-bell earnings report late yesterday disappointed investors increasingly concerned about big spending on artificial intelligence and cloud computing revenues.

With the quarterly Target update expected on Wednesday following the Fed’s decision, tension around the so-called Magnificent Seven of US mega-cap stocks is high – particularly after last week’s shake-up at Tesla and Alphabet’s earnings sent shockwaves through the S&P500.

But with a rotation into small-cap stocks underway, aggregate earnings growth still strong above 11% and most S&P500 stocks higher on Tuesday, stock futures rose across the board.

Aiding the Big Tech climate, Samsung Electronics predicted strong AI-driven chip demand in the second half of this year and reported a more than 15-fold increase in its second-quarter operating profit.

On the other hand, the Biden administration plans to unveil a new rule that will expand U.S. powers to block exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers, two sources familiar with the rule told Reuters.

Elsewhere, HSBC jumped 3% after announcing a $3 billion buyback and improving its earnings outlook on Wednesday – showing progress in its strategy to future-proof its business in the face of rate cuts global interest rates.

Key developments expected to provide further guidance to U.S. markets later on Wednesday: * U.S. ADP July private sector payrolls report, U.S. Q2 employment costs, July Chicago business survey, pending US home sales in June

* Federal Reserve policy decision, statement and press conference by Chairman Jerome Powell

* US Corporate Profits: Meta Platforms, Qualcomm, Ingersoll Rand, AIG, MetLife, Mastercard, KKR, eBay, Western Digital, Boeing, Dupoint De Nemours, Kraft Heinz, MGM Resorts, Marriott, Albemarle, Johnson Controls, Borgwarner, Hess, Altria, Everest, Verisk, Garmin, Humana, FMC, Allstate, ETSY, Eversource Energy, Paycom, Cognizant, Lam Research, Automatic Data Processing etc.

(Reporting by Mike Dolan, Editing by Ros Russell; mike.dolan@thomsonreuters.com)