Morning Bid Americas: Big Tech litmus test as Fed gathers

NextEra Energy

25/07/2023 11:00

A look at the day ahead in U.S. and global markets from Mike
Dolan
    
    Buoyant Wall St stocks brace for a critical test of this
year's extraordinary surge in Big Tech shares as Microsoft and
Alphabet both report after the bell on Tuesday, just as Federal
Reserve officials kick off their two-day policy meeting.
    The mood on world markets generally was lifted by a
bounce-back in ailing Chinese stocks - a delayed reaction to
Monday's somewhat vague statement from the country's ruling
Politburo on supporting the "tortuous" economic recovery there.
    The 4% snapback in Hong Kong's Hang Seng index  .HSI  -
still down almost 2% for the year - was driven by a 12% surge in
the beaten-down property sector  .HSMPI  but only brought the
overall benchmark back to where it was on July 14. The wider
blue-chip CSI 300 Index  .CSI300  snapped a six-day losing
streak to pop 3% and buying from state banks propped the yuan.  
   
    In sweltering Europe, the tone was more subdued as a survey
of big banks by the European Central Bank - also meeting this
week - showed business demand for loans dropped in the second
quarter to their lowest in the 20-year history of the poll as
credit conditions tightened further. German business confidence
sagged again this month too.
    Euro/dollar  EUR=  slipped further after the reports.
    All of which painted a confusing picture of the global
demand pulse going into the Fed meeting, with Monday's news of
ebbing U.S. business sentiment in July at least showing overall
growth in activity - in contrast to the euro zone contraction.
    A jump in crude oil prices  LCOc1  to three-month highs on
Monday - due to a major U.S. refinery outage and background
China stimulus hopes - was twinned with a 10 basis-point spike
in two-year Treasury yields  US2YT=RR  on a downbeat auction to
add to the messy dashboard.
    Both oil and Treasury yields gave back some of those gains
again today, however, with year-on-year crude price declines
still tracking more than 21%. S&P500 and Nasdaq stock futures
pushed higher, after fresh Wall St gains on Monday that saw Dow
Jones bluechips  .DJI  clock an 11-day winning streak for the
first time in more than six years. VIX  .VIX  volatility gauges
subsided from two-week highs.  
    There was little ostensible reaction to the formal
rebalancing of the Nasdaq 100  .NDX  index that pared weightings
of several of the big caps to reduce "over-concentration".   
    With the earnings season in full swing, investors now focus
on readouts from mega caps Microsoft  MSFT.O  and Google-owner
Alphabet's  GOOGL.O  after the bell on Tuesday - with the bar
high after this year's AI-infused stock surges and sky-high
valuations.
    The approach of Wednesday's Fed decision may limit market
moves until then. As it stands, futures are fully priced for
another quarter-point rate hike to the 5.25-5.50% range - and
still see this as likely the last in the cycle as markets
indicate less than a 50% chance of another move later in the
year. 
    Easing expectations for 12 months time are gradually being
reined in however.     
    
Events to watch for on Tuesday:
* U.S. corporate earnings: Microsoft, Alphabet, Texas
Instruments, NextEra Energy, Visa, Invesco, GE, GM, Dow,
Danaher, Corning, Kimberly-Clark, Biogen, Verizon, Moody's, EQT,
3M, Universal Health, Chubb, Dover, Nucor, Paccar,
Sherwin-Williams, Archer-Daniels-Midland etc
* U.S. July consumer confidence, Richmond Fed July business
survey, Philadelphia Fed July service sector, May house prices 
* Federal Reserve's Federal Open Market Committee starts 2-day
policy meeting - decision Wednesday
* International Monetary Fund updates World Economic Outlook
* U.S. Treasury auctions 5-year notes

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Fed financial conditions "impulse on growth"    https://tmsnrt.rs/3Q6g8AR
Global business activity    https://tmsnrt.rs/3Y31QD0
The Fed's 2023 U-turn    https://tmsnrt.rs/43G42BF
Q2 U.S. earnings forecasts    https://tmsnrt.rs/3K3Xkyj
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (By Mike Dolan, editing by Ed Osmond,
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
 ((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: mike.dolan.reuters.com@thomsonreuters.net))