Morning Bid Americas: Megacaps mixed as Fed pauses; ECB cut and GDP up next

A O Smith

30/01/2025 11:07

A look at the day ahead in U.S. and global markets from Mike
Dolan
With Federal Reserve policy likely paused until midyear and 
megacaps throwing up a mixed bag of results so far, stock
markets stayed calm overnight as attention switches to European
interest rates and a fourth-quarter U.S. GDP healthcheck.
    Quarterly results from Microsoft  MSFT.O  and Meta  META.O  
after the bell on Wednesday drew different reactions, with the
artificial intelligence theme more broadly thrown into the flux
this week by China's DeepSeek revelation.
    With the heavy AI spend of both firms in question due to the
arrival of the cheaper Chinese model, but defended by their
respective bosses overnight, Microsoft shares shed 4% out of
hours while Meta jumped 4%. Traders fretted about the former's
cloud business outlook but took Meta's beat at face value. 
    Auto giant Tesla  TSLA.O  jumped 4%, meantime, as plans for
cheaper models this year appeared to offset an earnings miss.
Apple and Intel top another heavy earnings diary on Thursday.
    The upshot before Thursday's open is that index futures
 ESc1   NQcv1  are up to half a percent higher, brushing aside
Wednesday's expected Fed decision to keep rates on hold while it
assesses the impact of new government policies in Washington.
    Chair Jerome Powell said the Fed was in no "hurry" to change
a "well-positioned" stance even as President Donald Trump
lambasted the central bank for doing a "terrible" job on
inflation while claiming it spent too much time on diversity and
climate. 
    Fed futures were broadly unchanged - pricing in another cut
by midyear, only a 20% chance of an earlier move in March and
two cuts overall for 2025.
    But Treasury yields have ebbed since the decision, in part
due to signs of a weakening of the economy late last year and
also as interest rates tumbled elsewhere around the world.
    The Bank of Canada cut its policy rates by another quarter
point on Wednesday, citing in part the threat of Trump tariffs
to the economy, and the European Central Bank is widely expected
to lop another 25 basis points off its key rate on Thursday.
    
    TRADE DEFICIT
    But as traders awaited the release of U.S. fourth-quarter
gross domestic product readouts later on Thursday too,
Wednesday's news of a sharp widening of the international trade
deficit reset some calculations about just how brisk growth is
coming into this year.
    The U.S. goods trade deficit vaulted to a record high in
December, prompting the Atlanta Fed's closely-watched "GDPNow"
model to recalibrate to a 2.3% rate from a prior estimate of
3.2%.
    Forecasts for GDP growth prior to the trade release had
centred on a 2.6% annualized rate for the last quarter - down
from a 3.1% pace in the July-September period.
    Although still expanding well above the 1.8% rate that Fed
policymakers view as the sustainable non-inflationary pace of
growth, the economy is expected to have clocked a 2.8% advance
for the full year - just off the 2.9% recorded for 2023.
    Ten-year Treasury yields  US10YT=RR  fell back close to the
year's lows around 4.5% ahead of the report, helped by a slide
in U.S. crude oil prices to their lowest since Jan. 2 - with the
year-on-year fall in crude as much as 7% for the first time in a
month.
    The dollar index  .DXY  was steady, with the euro  EUR= 
dipping slightly ahead of the expected ECB rate cut.
    In contrast to the still-upbeat U.S. growth rates,
disappointing German and French GDP numbers for Q4 have given
the ECB every reason to keep easing policy. 
    The German economy contracted more than expected in the
final quarter of last year as Europe's biggest economy struggles
with trade worries and uncertainties ahead of a federal election
next month. GDP fell by 0.2% in the fourth quarter compared with
the previous three-month period, and France unexpectedly
contracted too - amid political and budgetary impasses there.
    Italy also stalled, leaving Spain as the only country among
the euro zone's big four with a positive growth rate in Q4.
    A sliver of optimism cut across the reports from a pickup in
euro zone economic sentiment in January and, encouraged in part
by ECB easing, euro zone stocks climbed another 0.5% on
Thursday.
    That was despite some earnings-day hits to some big European
companies. Deutsche Bank  DBKGn.DE  fell 6% after Germany's
largest lender posted a bigger-than-expected drop in
fourth-quarter and 2024 full-year profits. STMicroelectronics
 STMPA.PA , one of Europe's largest chipmakers, fell 8% to a
near five year low after a poor forecast for the first quarter. 
    With trade anxieties high on the list of concerns, the
chance of a first sweep of Trump tariffs as soon as next week
still looms large - even though officials appeared to hold out
the chance of a deal and indicating reviews through April 1.
    Trump's commerce secretary nominee Howard Lutnick said that
Canada and Mexico can avoid Trump's threatened 25% U.S. import
tariffs if they swiftly act to stop allowing fentanyl and
illegal immigrants into the United States.
    "And as far as I know, they are acting swiftly, and if they
execute it, there will be no tariff," he said.
    
Key developments that should provide more direction to U.S.
markets later on Thursday: 
* European Central Bank policy decision, with press conference
from ECB President Christine Lagarde
* US Q4 GDP estimate, weekly jobless claims, December pending
home sales
* US corporate earnings: Apple, Intel, Visa, Mastercard, UPS,
Blackstone, Dow, Eastman Chemical, Caterpillar, Comcast, Dover,
Altria Southwest Airlines, PPG, Northrop Grumman, Quest
Diagnostics, Thermo Fisher Scientific, Gen Digital, Valero,
Marsh & McLennan, International Paper, Baker Hughes,
Weyerhauser, Cigna, Cardinal Health, AO Smith, Parker-Hannifin,
Pultegroup, Sherwin-Williams, Roper, L3Harris, KLA, Hartford,
Deckers Outdoor, Trane, Avery Dennison, Resmed  


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
As Fed pauses, 'GDPNow' rate slips on trade    https://tmsnrt.rs/4giCQ22
Traders reckon the ECB will deliver four rate cuts this year   
https://reut.rs/4g98mzt
G10 rates - Bank of Canada cuts key rates by 25 basis points   
https://reut.rs/4hzWmrN
Speculators long dollars across G10     https://reut.rs/3WDTMcc
Apple leads smartphone sales decline in holiday quarter    https://reut.rs/40JyUmf
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (By Mike Dolan, editing by Gareth Jones 
mike.dolan@thomsonreuters.com)
 ((mike.dolan@thomsonreuters.com  https://reut.rs/3xFdLhlhomsonreuters.com
 mailto:mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: rm://mike.dolan.reuters.com@thomsonreuters.net/))