BOJ Hikes, and the Fed is Next…
The Bank of Japan kicked off the week’s central bank activities early on Wednesday, raising interest rates and signaling its intent to unwind a decade of massive monetary stimulus. The BOJ hiked its overnight call rate target to 0.25% from 0-0.1% by a 7-2 vote. They also laid out a detailed quantitative tightening plan, which will gradually reduce monthly bond buying to around ¥3 trillion by early 2026, half of the current rough target. This rate hike comes amid improvements in Japanese inflation over the past two months, driven by stronger consumer spending and wage growth.
Meanwhile, in the U.S., a benign June inflation report has investors eagerly anticipating the Federal Reserve’s policy guidance, hoping it will lay the groundwork for a September rate cut. The Fed is expected to maintain its benchmark overnight interest rate in the current 5.25%-5.50% range. Futures markets are already fully priced for a quarter-point easing in September, with a small chance of a 50 basis point reduction. By Christmas, 66 basis points of easing are expected.
Futures Rise as Investors Digest Corporate Results
U.S. stock futures rose on Wednesday as investors awaited the conclusion of the latest Federal Reserve meeting while parsing through a series of important earnings reports. By 04:10 ET (08:10 GMT), the Dow futures contract was up 77 points, S&P 500 futures climbed 42 points, and Nasdaq 100 futures rose by 252 points.
Meta Platforms (NASDAQ
) will release earnings after the close, with other key earnings reports from Boeing (NYSE
), Qualcomm (NASDAQ
), Etsy (NASDAQ
), and Carvana (NYSE
). The session is set to be crucial for the S&P 500 and Nasdaq Composite, which are on track to end the month lower, while the Dow Jones Industrial Average is poised for a more than 4% gain.
Microsoft’s Cloud Growth Disappoints
Microsoft (NASDAQ
) reported its fourth-quarter results after the close on Tuesday, disappointing investors with slower growth in its Azure cloud business despite increased spending on AI infrastructure. Azure’s growth slowed to 29% from 31% in the previous quarter. Meanwhile, capital spending surged to $19 billion, highlighting the tech giant’s ongoing investment in AI. This contrasted with the previous week’s drop in Google-parent Alphabet (NASDAQ
) shares following a similar narrative of high spending without immediate returns.
Meta Expected to See Jump in Revenue
Meta Platforms is set to release its quarterly results, with expectations of a 20% rise in revenue driven by strong ad sales from the Olympics and elections in various countries. Analysts are keen to see if the heavy investments in AI infrastructure will start yielding returns. Bank of America Securities analysts remain positive on Meta, predicting that AI-driven ad improvements could lead to revenue upside.
Crude Prices Rise on Elevated Political Tensions
Crude prices surged on Wednesday following the killing of Hamas leader Ismail Haniyeh in Iran, escalating tensions in the Middle East. By 04:10 ET, U.S. crude futures climbed 1.8% to $76.08 a barrel, while the Brent contract rose 1.7% to $79.38 a barrel. The increase in prices overshadowed data from the American Petroleum Institute showing a fifth consecutive week of draws in U.S. inventories, reflecting strong fuel demand.
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